J 


MERG1AL 


UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


LYONS 


COMMEECIAL     LAW 


BY 


J.  A.  LYONS 

FORMERLY  A  MEMBER  OF  THE  CHICAGO  BAR 


POWERS   &   LYONS 

CHICAGO  NEW    YORK 


r 


COPYRIGHT,    1894,    BY  O.    M-    POWERS 


COPYRIGHT,    1901,    BY    POWERS  &  LYONS 


PEEFACE 

This  work  first  made  its  appearance  in  1894.  It  contained  many 
features  at  that  time  new  to  text  books  on  commercial  law.  The 
value  of  these  features  as  well  as  the  complete  adaptability  of  the 
work  to  the  class  room  were  immediately  recognized  by  a  majority  of 
commercial  teachers  and  a  large  use  was  made  of  the  work  in  their 
classes.  The  numerous  editions  made  necessary  by  these  demands 
have  worn  the  plates  and  the  publishers  finding  a  new  set  of  plates 
necessary  have  taken  the  occasion  to  add  a  number  of  new  features 
that  it  is  believed  will  add  still  more  to  the  value  of  the  work  and 
that  will  bring  the  subjects  herein  treated  even  more  fully  within 
the  comprehension  of  the  pupil  without  business  experience.  A  few 
paragraphs  have  been  added  treating  of  subjects  of  interest  not 
treated  in  the  first  edition. 

An  occasional  reference  has  been  made  to  state  reports  of  decision?.. 
All  pupils  may  not  be  able  to  make  use  of  these  but  some  will  do  so 
with  profit. 

The  large  number  of  States  which  have  already  adopted  the  Nego- 
tiable Instrument  Act  made  it  seem  desirable  to  show  wherein  it 
differed  from  the  Law  Merchant  on  that  subject.  Accordingly  this 
has  been  done. 

The  "Practical  Cases"  on  negotiable  instruments  are  new  to  a  work 
of  this  character.  They  have  been  introduced  to  give  the  pupil  some 
facility  in  discovering  the  defects  in  such  paper  from  an  inspection  of 
the  paper  itself. 

Finally  several  new  business  and  legal  forms  have  been  introduced 
and  the  references  brought  down  to  date.  In  these  additions  it  is 
believed  teachers  will  generally  concur. 


CONTENTS. 


PAGE. 

GENERAL  OUTLINE  OP  LAW 6 

INTRODUCTION 7 

PROPERTY 12 

GENERAL  OUTLINE  OP  CONTRACTS 15 

CONTRACTS ....  16 

Parties 20 

Assent 24 

Consideration 27 

Subject  Matter 81 

Remedies 35 

Defenses 38 

Statute  of  Frauds 38 

Statute  of  Limitations 42 

Tender 44 

Payment 46 

Performance 48 

Forfeiture 49 

Set-Off 49 

Recoupment 60 

Miscellaneous  Items 50 

Practical  Review 53 

LEGAL  MAXIMS 56 

NEGOTIABLE  INSTRUMENTS 57 

Drafts 61 

Notes 64 

Checks 69 

Conditions  of  Transfer 73 

Endorsements 77 

Presentment  for  Acceptance 82 

Presentment  for  Payment ,  86 

Quasi  Negotiable  Instruments 91 

Practical  Review 95 

Practical  Cases 98 

GUARANTY  AND  SURETYSHIP 106 

INTEREST  AND  USURY 114 

SALE  OF  PERSONAL  PROPERTY 118 

Delivery 123 

Chattel  Mortgage 128 

Warranty 131 

Practical  Review           138 

4 


CONTENTS.  6 

PAGE. 

BAILMENT 135 

Deposit 136 

Commission 137 

Gratuitous  Loans 139 

Pledge          j^y  ............  140 

Hire 143 

Common  Carriers 149 

Practical  Review 153 

AGENCY 155 

Duties  of  Agent  to  Principal 158 

Duties  of  Agent  to  Third  Persons 160 

Liabilities  of  Principal  to  Agent 161 

Liabilities  of  Principal  to  Third  Persons 163 

Liabilities  of  Third  Persons  to  Agent 164 

Liabilities  of  Third  Persons  to  Principal 165 

Dissolution 165 

Practical  Review .  168 

PARTNERSHIP 170 

Partner's  Authority  and  Liability 173 

Dissolution 176 

Limited  Partnership. 179 

Practical  Review 180 

CORPORATIONS 182 

Powers  of  Corporations 187 

JOINT  STOCK  COMPANIES 193 

INSURANCE 196 

Fire 196 

Life 202 

Casualty 207 

REAL  ESTATE ...  212 

Estates 213 

Conveyances ...  216 

Landlord  and  Tenant  .  .  .230 


GENERAL   OUTLINE  OF   LAW. 


I.      MOKAL. 


II.    NATURAL. 


LAW./ 


III.    INTERNATIONAL. 


IV.     MUNICIPAL. 


1.  Constitutional 


(a. 

itutional.  -j 
(b. 


a.  National. 


State. 


2.  Statute. 


3.  Common. 


a.  National. 

b.  State. 


INTRODUCTION. 


CHAPTER   I. 

1.  Law  in  its  broadest  sense  is  a  rule  of  action.     Every  law  which 
is  capable  of  being  violated  has  a  penalty  attached ;  that  is,  if  right- 
fully administered,  its  violation  brings  a  painful  consequence. 

2.  Kinds. — There  are  four  general  kinds  of  law,  namely :  (1)  Moral, 
(2)  Natural,  (3)  International,  and  (4)  Municipal. 

3.  Moral  Law  is  prescribed  by  God  for   man's  conduct — as  for 
instance,  the  ten  commandments. 

4.  Natural  Law  includes  all  that  body  of  laws  which  apply  to 
matter,  and  which,  when  collected  and  classified,  form  the  basis  of 
all  sciences. 

EXAMPLES. — The  laws  of  falling  bodies,  the  laws  of  sound,  the  law  of  self- 
preservation,  etc. 

To  follow  out  this  branch  of  law  would  lead  us  into  almost  every 
branch  of  science  and  field  of  human  inquiry. 

5.  International  Law  is  a  code  of  rules  recognized  by  all  civilized 
nations  as  governing  their  intercourse  with  each  other.     It  is  founded 
on  justice. 

6.  Municipal   Law  is  a  rule  of  civil  conduct  prescribed  by  the 
supreme  power  in  a  state,  commanding  what  is  right  and  prohibiting 
what  is  wrong.     It  is  of  human  origin,  and  in  its  attempts  to  com- 
mand what  is  right  and  prohibit  what  ia  wrong,  it  will  be  found  U 
closely  follow  or  coincide  with  the  moral  law.     Yet  these  laws  are  not 
always  identical. 

The  moral  law  does  not  prohibit  smuggling,  yet  the  municipal  law  does; 
on  the  other  hand,  the  moral  law  will  not  excuse  the  non-payment  of  a  just 
account,  no  matter  how  long  it  may  have  run,  but  the  municipal  law  does 
do  so  after  the  lapse  of  a  certain  time. 

7 


8  INTRODUCTION. 

7.  Necessity  of  Laws. — It   would   be  hard   to  imagine    a   state 
without  a  code  of  municipal  laws,  in  fact,  none  could  exist,  because  its 
very  existence  depends  upon  the  cohesive  force  of  such  laws  to  bring 
and  keep  the  people  together  as  a  state.     Without  it  there  would  be 
no  organization,  nothing  but  a  mass  of  individuals.     If  man  were 
perfect  and  always  inclined  to  do  right  to  his  fellow  man,  no  such 
system  of  laws  would  be  necessary.     But  such  is  not  the  case,  and  the 
enactment  of  laws  is  simply  an  effort  on  the  part  of  society  to  protect 
itself. 

8.  Extent  of  Laws. — As  each  state  or  nation  must  have  its  own 
laws   governing  the   civil   conduct   and  property  of   its  citizens,  it 
follows   that  these   laws  have   full  force  and  effect   cnly  within  its 
boundaries.     All  persons    within   its   boundaries   must   obey  them, 
whether   citizen  or  stranger,  and  all  property  within  its  borders  is 
likewise  subject  to  its  provisions,  regardless  of  the  residence  of  the 
owner. 

9.  Kinds  of  Municipal   Law. — Municipal    law  as   applied  to  our 
own  country   is    divided  into   three   parts,    namely:     (1)    Constitu- 
tional, (2)  Statute  and  (3)    Common.    They  are  here  arranged  in  the 
order  in  which  they  take  precedence.     Before  entering  upon  a  discus- 
sion of  these  different  branches  of  municipal  law  it  will  be  well  for 
us  to  study  the  general  plan  of  our  government  and  its  methods  of 
framing  and  passing  laws. 

10.  Origin  of  Our  National  Government. — The   thirteen    original 
states    were    thirteen    entirely  distinct    and    separate    colonies    all 
belonging  to  Great  Britain  and  subject  to  her  laws.      The  revolu- 
tionary war  freed  them  from  the  rule  of  the  mother  country  and  left 
them  thirteen  distinct  governments,  if  indeed  they  can  be  said  to 
have  had  a  government  at  all.     Each  was  a  sovereign  state  or  nation. 
Having  united  their  efforts  in  a  common  cause  in  throwing  off  the 
parental  yoke  and  being  exposed  to  a  common  danger  of  attack  by  the 
Indians,  it  is  not  surprising  that  they  decided  to  form  a  more  perfect 
union  and  to  establish  a  new   and   general   government,  of   which 
they  would  each  be  a  component  part.     In  the  formation  of  this  gen- 
eral government  each  sovereign  state  gave  up  a  portion  of  its  rights 
and  powers,  still  reserving  and  retaining,  however,  the  larger  part 
of    these  rights  and  powers    for  itself.      Each  state   gave  up  the 
same  rights   and  powers,  and  this   body  of  rights   and  powers  so 
relinquished  in  favor  of  the  general  government,  was  incorporated  into 


INTRODUCTION.  9 

that  now  famous  instrument  called  the  Constitution  of  the   United 

States. 

11.  The  Constitution. — This  constitution  is  therefore  an  enumera- 
tion of  all  the  rights,  powers,  and  privileges  of  the  national  govern- 
ment. When  we  bear  in  mind  the  history  of  its  formation  we  can 
readily  see  that  the  national  government  can  have  only  those  rights 
and  powers  which  are  specifically  enumerated  in  its  constitution  or  are 
to  be  clearly  inferred  therefrom.  It  is  therefore  said  to  be  "a  gov- 
ernment of  limited  powers."  In  accordance  with  this  constitution  a 
president  is  elected  and  a  legislature  or  congress  consisting  of  two 
bodies,  the  senate  and  house  of  representatives.  A  system  of  courts 
is  also  established  for  the  interpretation  of  the  laws  made  by  the 
national  government. 


CHAPTER   II. 

INTRODUCTION— CONTINUED. 

12.  State    Governments. — There  is   a  government  in  each   state 
organized  in  substantially  the  same  manner  as  the  national  govern- 
ment, the  basis    or  fundamental  law  of   which  is   a  constitution. 
Unlike  the  national  government,  however,  a  state  government  pos- 
sesses all  powers  of  sovereignty  possessed  by  any  nation,  with  the 
exception  of  those  powers  and  rights  heretofore  mentioned  as  having 
been  given  up  -to  the  national  government,  and  also  with  the  excep- 
tion of  the  restrictions  which  the  people  themselves  have  placed  on 
their  government  in  their  constitution. 

13.  Difference  between  State  and  National   Constitutions. — From 
the  brief  history  of  both  state  and  national  constitutions  given  above, 
it  will  be  readily  seen  that  they  must  differ  widely  in  their  scope. 
The  national  constitution  is  an  enumeration  of  certain  rights  and 
powers,  and  the  state  constitution   an  enumeration  of  restrictions 
placed  upon  the  state  government  by  the  people  themselves.    We  here 
see  two  governments,  distinct  yet  supplemental,  in  operation  over 
the  same  territory,  but  not  in  any  sense  conflicting.     Each  has  its 
functions,  each  has  its  own  laws,  and  each  is  limited  and  controlled 
by  its  constitution. 


10  INTKODUCTION. 

14.  Statute  Law. — A  bill  in  order  to  become  a  national  law  must 
receive  a  majority  of  the  votes  of  each  house  of  congress  and  be  signed 
by  the  president,  or  if  vetoed  by  him  it  can  still  become  a  law  by  a 
two-thirds  majority  vote  of  each  house.     A  law  passed  in  this  manner 
is  called  "a  national  statute."     It  is,  of  course,  formally  expressed 
and  exact  in  its  terms.     The  statutes  in  force  are  collected  and  pub- 
lished by  the  authority  of  the  government. 

In  a  similar  manner  laws  are  passed  by  the  state  legislature  and 
signed  by  the  governor.  These  are  called  "state  statutes." 

15.  Common  Law. — The  common  law  originated  in  England  so 
long  ago  that  its  exact  origin  is  a  matter  of  some  doubt.     The  gen- 
eral opinion  is  that  it  arose  from  the  customs  of  the  times  and  long 
usages  which  finally  came  to  have  the  full  force  and  effect  of  laws. 

The  rule  of  giving  to  makers  of  promissory  notes  three  days  (called  days 
of  grace)  more  than  stated  in  the  note  itself,  arose  originally  out  of  a  custom 
which,  gradually  becoming  more  general  and  certain,  finally  was  recognized 
by  the  courts  as  a  right  belonging  to  the  maker.  In  other  words,  what  was 
first  a  custom  finally  came  to  have  the  significance  of  a  law. 

The  common  law  is  sometimes  called  the  "unwritten  law,"  because 
it  is  not  formally  expressed  as  is  statute  law,  but  is  found  in  the 
reported  decisions  of  courts.  The  common  law  was  in  force  in  Eng- 
land at  the  time  of  our  separation  from  her.  It  had,  of  course,  up  to 
that  time  been  in  force  in  the  colonies  and  the  people  were  familiar 
with  it.  Therefore  they  naturally  chose  to  adopt  it  and  declared  it 
to  be  still  in  full  force  and  effect,  so  far  as  it  was  applicable  to  them- 
selves. 

" That  the  common  law  of  England  so  far  as  the  same  is  applicable 

and  of  a  general  nature,  and  all  statutes  or  acts  of  the  British  parliament 
made  in  aid  of,  and  to  supply  the  defects  of  the  common  law,  prior  to  the 
fourth  year  of  James  the  First,  and  which  are  of  a  general  nature  and  not 
local  to  that  kingdom,  shall  be  the  rule  of  decision,  and  shall  be  considered 
as  of  full  force  until  repealed  by  legislative  authority." — Act  of  the  General 
Convention  of  Delegates  of  the  Colony  of  Virginia,  held  at  Williamsburg, 
Monday,  May  6,  1776. 

Similar  statutes  have  been  passed  by  most  if  not  all  of  the  states 
except  Louisiana,  which  adopted  the  civil  law  instead. 

16.  Order  of  Precedence. — The  national  constitution  consists  of 
certain  rights  and  powers  relinquished  by  the  states  to  the  general 
government ;  it  is,  therefore,  the  supreme  law  of  the  land  in  regard 
to  all  matters  contained  in  it.  The  national  statutes,  being  made  in 
strict  accordance  with  the  constitution,  must  necessarily  come  next 
in  order.  The  states,  as  we  have  seen,  reserve  to  themselves  supreme 
authority  on  many  questions ;  they  have  also  placed  numerous  restric- 


INTBODUCTION.  11 

tions  upon  their  own  government.  In  regard  to  all  these  matters  the 
state  constitutions  of  the  several  states  are  supreme  in  authority. 
State  statutes  made  in  accordance  with  the  state  constitution  are 
next  in  authority,  and  lastly  stands  the  common  law.  When  there  is 
a  conflict  between  the  statute  of  a  state  and  the  common  law,  the 
statute  takes  precedence  until  repealed,  when  the  common  law  again 
comes  into  operation.  The  common  law  is  in  force  wherever  there 
is  no  statute  upon  a  subject,  and  it  thus  supplies  what  in  many  cases 
would  be  a  great  deficiency  in  our  statute  law.  No  legislators  could 
possibly  foresee  and  provide  for  all  the  possible  contingencies  and 
difficulties  that  could,  and  do,  arise  in  the  business  relations  of  a 
complex  civilization. 

17.  Commercial  Law  is  that  branch  of  the  common  law  which  more 
particularly  pertains  to  contracts  and  the  ordinary  affairs  of  business. 
It  embraces  more  than  the  old  "law  merchant,"  for  that  was  mainly 
concerned  with  marine  affairs  and  bills  of  exchange. 

Being  a  branch  of  the  common  law,  its  source  is  the  same  as  is  the 
common  law,  and  it  is  modified  or  annulled  by  statutes  in  the  same 
manner. 


12 


PROPEETT. 


PROPERTY. 


PROP- 
ERTY. 


KINDS.  . 


CHAPTER   III. 
I.  Keal. 
II.  Personal. 


a.  Things  in  action. 

b.  Things  in  possession 


I.  In  Severalty. 
How  HELD.  •{    II.  In  Joint  Tenancy. 

III.  In  Tenancy  in  Common. 


18.  Definition. — Property  in  its  legal  sense  is  the  right  which  one 
has  in  anything  to  the  exclusion  of  every  one  else.     It  will  thus  be 
seen  that  it  is  not  the  thing  itself  that  constitutes  property,  but  it  is 
the  exclusive  right  to  it  or  to  a  certain  part  of  it.     When  a  thing  is 
sold  it  is  simply  the  right  to  it  that  is  transferred,  although  the  pos- 
session or  custody  of  the  thing  itself  may  or  may  not  be  transferred. 
The  common  acceptation  of  the  term  property,  however,  is  the  thing 
itself. 

19.  Kinds. — There  are  two  kinds  of  property — real  and  personal. 
Real  property,  or  real  estate,  includes  all  property  of  a  fixed  or 

immovable  character,  such  as  laud,  together  with  what  is  permanently 
attached  to  it,  or  is  built  or  growing  upon  its  surface,  and  the  min- 
erals that  are  beneath.  Improvements  are,  however,  sometimes  made 
upon  realty  under  such  circumstances  as  to  still  remain  in  the  eyes  of 
the  law  separate  and  distinct.  (See  Fixtures.) 

Personal  property  is  anything  that  is  movable,  or  capable  of  attend- 
ing the  person  of  the  owner,  hence  called  personal  property.  "Chat- 
tels" is  a  term  also  used  in  the  same  sense.  Trees  while  growing 
upon  the  land  are  usually  considered  as  real  estate,  but  when  cut  and 
lying  as  logs  or  lumber  they  are  personal  property.  Thus  minerals 


PROPERTY.  13 

while  yet  in  the  earth  are  a  part  of  the  realty,  but  when  dug  and 
thrown  out  on  the  ground  they  become  personal  property.  On  the 
other  hand,  that  which  is  personal  property  may  again  become  realty 
by  becoming  a  part  and  parcel  of  it — as  posts  driven  in  the  ground 
for  a  fence  and  the  boards  which  are  nailed  upon  them. 

The  right  to  the  use  of  land  for  a  term  of  years,  no  matter  how 
long  or  how  short,  is  regarded  as  personal  property. 

As  a  further  illustration  of  the  fact  that  in  a  legal  sense  property 
is  the  right  to  a  thing,  and  not  the  thing  itself,  observe  that  one  may 
contract  to  buy  or  sell  a  right  simply.  A  copyright,  a  patent,  the 
right  of  way  over  another's  land,  are  all  proper  subjects  for  con- 
tracts. Although  there  is  nothing  tangible  to  pass,  yet  these  rights 
are  frequently  valuable.  Of  the  same  nature  is  the  good  will  of  a 
business.  It  may  be  worth  more  than  the  chattels  that  go  with  it. 

20.  Kinds  of  Personal  Property. — Personal    property  is    of    two 
kinds:  (1)  Things  in  possession,  and  (2)  Things  in  action. 

Tilings  in  Possession. — If  one  has  the  right  to  a  certain  thing  and 
also  the  possession  thereof,  such  as  a  horse,  a  book,  or  a  desk,  such 
property  is  a  thing  in  possession.  It  will  be  noticed  that  it  requires 
both  the  ownership  and  the  possession  to  constitute  a  thing  in  posses- 
sion. 

Things  in  action  include  all  personal  property  one  may  own  and  yet 
not  have  the  possession  thereof.  It  is  called  a  thing  in  action  because 
if  the  owner's  right  to  the  possession  of  such  property  be  denied  he 
can  bring  suit  or  action  to  reduce  it  to  his  possession.  Accounts, 
promissory  notes,  and  all  forms  of  indebtedness  are  examples  of  things 
in  action.  If  one  has  the  mere  possession  of  an  article  but  does  not 
own  it,  it  is  not  a  thing  in  possession  to  him  but  is  a  thing  in  action 
to  the  owner. 

Or  again,  A  may  have  a  thing  in  possession,  such  as  a  horse ;  he  sells  this 
to  B,  taking  his  note  therefor, — this  note  is  a  thing  in  action.  At  maturity 
B  pays  the  note  and  the  money  received  constitutes  a  thing  in  possession. 

21.  How  Property  Is  Held  or  Owned. — With  respect  to  the  number 
of  owners,  property  is  usually  held  in  one  of  three  ways:    (1)  In 
severalty,  (2)  in  joint  tenancy,  and  (3)  in  tenancy  in  common 

Severally.  The  most  common  way  in  which  property  is  held  is  in 
severalty.  This  is  where  it  is  all  owned  by  a  single  individual. 

Joint  tenancy.  At  common  law  when  two  or  more  persons  pur- 
chase or  are  granted  lands  or  tenements,  they  are  said  to  be  joint 
tenants,  and  the  estate  is  a  joint  tenancy.  The  owners  each  have  the 


14  PBOPEBTY. 

same  interest  and  an  equal  interest,  not  only  in  each  and  every  part, 
but  in  the  whole,  and  each  is  likewise  entitled  to  the  possession  of  the 
whole.  They  simply  hold  and  occupy  it  jointly,  and  each  receives  an 
equal  share  of  the  proceeds  or  increase.  The  peculiarity  of  this 
estate  is  the  right  of  survivorship,  by  virtue  of  which  if  one  of  the 
joint  tenants  dies  his  share  is  divided  equally  among  the  survivors. 

In  some  states  the  right  of  survivorship  has  been  abolished  by 
statute. 

Joint  tenancy  can  only  arise  by  purchase  or  oy  will,  and  never  by 
descent. 

Tenancy  in  common  is  practically  the  same  estate,  except  that  the 
tenants  need  not  have  equal  shares  and  they  do  not  have  the  right  of 
survivorship. 

That  is,  a  certain  piece  of  property  may  be  owned  by  three  persons,  one  of 
whom  owns  one-half  and  the  other  two  each  one-fourth,  which  could  not  be 
the  case  in  joint  tenancy. 

Each,  however,  is  entitled  to  the  possession  of  each  and  every  part, 
and  to  the  same  proportion  of  the  increase  or  profit  as  he  owns  of  the 
whole.  The  right  of  survivorship  does  not  exist  in  tenancy  in  com- 
mon, consequently  when  a  tenant  in  common  dies  his  share  passes  to 
his  heirs  instead  of  to  the  survivors. 

Joint  tenancy  was  favored  by  the  common  law,  but  the  statutes  of 
many  states  now  require  that  the  intention  to  create  a  joint  tenancy 
must  be  clearly  stated,  otherwise  it  will  be  considered  to  be  a  tenancy 
in  common. 


CONTRACTS. 


16 


GENERAL  OUTLINE  OF  CONTRACTS. 


'    I.    ESSENTIALS. 

(I: 

18. 

Competent  Parties. 
Agreement  or  Assent. 
Consideration. 

I  4. 

Legal  Subject  Matter. 

II.     KINDS  AS  TO 
VALIDITY. 

ii: 

Valid. 
Void. 
Voidable. 

IRACTS. 

III.     KINDS  AS  TO 
SOLEMNITY. 

i: 

Specialty,  a 
Parol 

Iways  Written 

)a.  Written. 
6.  Oral, 
c.   Implied. 

0 

o 

IV.     KINDS  AS  TO 
EXPRESSION. 

11 

Expressed. 
Implied. 

V.     KINDS  AS  TO 

(l- 

Executed. 

TIME  or  PER- 

\ 

FORMANCE. 

(i. 

Executory. 

VI.     KINDS  AS  TO 

I1' 

Joint. 

RELATION  OF 

] 

,              OBLIGORS. 

(2. 

Several. 

16  CONTRACTS. 


CONTRACTS. 


CHAPTER    IV. 

22.  Definition. — A  contract  is  an  agreement  between  two  or  more 
competent  parties,  based  upon  a  sufficient  consideration,  to  do  or  not 
to  do  some  lawful  possible  thing. 

It  will  be  noticed  that  this  definition  naturally  divides  itself  into 
four  parts,  and  as  each  of  them  is  absolutely  essential  to  the  validity 
of  every  contract,  they  are  called  the  essentials  of  a  contract. 

23.  Essentials  of  a  Contract. — The  essentials  are  as  follows: 

I.  Competent  Parties. 

II.  An  Agreement,  or  Assent. 

III.  Consideration. 

IV.  Legal  Subject  Matter. 

These  will  each  be  discussed  in  separate  chapters  to  follow. 

24.  Importance  of  Contracts. — The  importance  of  the  law  govern- 
ing contracts  cannot  be  overestimated,  for  contracts  constitute  the 
sum  and  substance  of  all  business  transactions.     You  go  to  the  mar- 
ket in  the  morning  for  your  breakfast  steak;  you  get  upon  the  street 
car  to  ride  to  your  place  of  business ;   you  buy  the  morning  paper 
from  the  newsboy  at  the  corner ;   all  these  acts  imply  contracts,  and 
the  rules  of  law  applicable  to  them  are  as  clearly  defined  as  though 
they  each  involved  thousands  of  dollars ;   in  fact,  these  rules  of  law 
are  the  same,  no  matter  whether  one  cent  is  involved  or  a  thousand 
dollars. 

The  study  of  commercial  law  is  substantially  a  study  of  contracts. 
It  is,  however,  the  plan  of  this  work  to  give  under  this  head  only 
such  general  rules  of  law  as  are  applicable  alike  to  all  contracts,  leav 
ing  to  each  particular  class  of  contracts  the  discussion  of   those 
features  that  are  peculiar  to  it. 


CONTRACTS.  17 

25.  Division  of  Contracts. — Contracts  are  considered  in  five  differ- 
ent ways,  as  follows : 

I.  As  to  Validity. 

II.  As  to  Solemnity. 

III.  As  to  Expression. 

IV.  As  to  Time  of  Performance. 
V.  As  to  Relation  of  Obligors. 

These  will  now  be  considered  separately. 

26.  As  to  Validity,  contracts  are : 

I.     Valid. 
II.     Void. 
III.     Voidable. 

A  valid  contract  is  one  which  contains  all  the  elements  of  a  con- 
tract,— one  which  the  courts  will  enforce. 

A  void  contract  is  one  that  was  of  no  effect  from  the  beginning — 
one  that  neither  party  could  have  enforced  at  any  time.  It  is  an 
agreement  which  the  law  forbids  any  one  to  make. 

A  agrees  with  B,  for  a  consideration,  to  go  to  a  foreign  country,  buy 
dutiable  goods  and  smuggle  them  into  the  United  States.  This  is  a  void 
jontract,  and  neither  party  could  compel  the  other  to  comply  with  it.  Nor 
could  A  collect  his  charges  from  B  after  performing  his  part  of  the  contract. 

A  voidable  contract  is  one  that  may  or  may  not  be  enforced  at  the 
option  of  one  of  the  parties.  It  is  one  that  is  capable  of  being  avoided 
if  it  is  so  desired. 

A,  who  is  a  child,  agrees  with  B,  an  adult,  to  purchase  a  valuable  horse. 
A  being  a  minor,  may  take  the  horse  or  not,  as  he  wills.  His  contract  is  a 
voidable  one. 

27.  As  to  Solemnity  of  Contracts,  the  most  general  classification  is 
as  follows : 

I.     Specialty,  always  written. 

(  a.  Written. 
II.     Parol,  \  b.   Oral. 

(  c.    Implied. 

28.  A  Specialty  is  always  in  writing,  signed  and  under  seal.     To 
seal  a  contract  is  to  place  a  small  wafer,  or  scroll,  immediately  after 
the  signature.     It  is  the  theory  of  the  law  that  placing  the  instru- 
ment under  seal  denotes  a  certain  solemnity  and  deliberation  in  the 
making,  and  therefore,  in  such  cases  a  consideration  is  presumed, 
whether  one  is  stated  or  not.     Seals  are  of  very  ancient  origin,1  in 
fact  they  were  used  before  writing  became  a  common  accomplishment. 

1 1  Kings,  chap.  21.    Daniel,  chap.  6.    Esther,  chap.  8.    Jeremiah,  chap.  32. 


18  CONTRACTS. 

The  body  of  the  instrument  was  written  by  a  public  scrivener,  but 
the  parties,  not  being  able  to  write  even  their  own  names,  indicated 
that  it  was  their  deed  by  the  imprint  of  their  private  seals.  It  was 
the  custom  to  have  the  seal  engraved  on  the  ring,  that  it  might 
always  attend  the  owner  and  be  ready  for  instant  use,  and  also  to 
insure  its  privacy. 

A  drop  of  molten  wax  or  the  waxen  wafer  was  put  in  place,  and  an 
imprint  of  the  seal  made  upon  it. 

Although  the  necessity  for  seals  has  long  since  ceased  to  exist,  yet 
they  still  remain  as  a  monument  to  the  reluctance  with  which  the 
law  gives  up  old-established  usages  and  forms. 


SHAKESPEARE'S  SIGNET  RING. 

Some  states1  have  oy  statute  abolished  seals  altogether,  while 
others,8  though  still  requiring  them  to  be  attached  to  the  most  impor- 
tant contracts,  such  as  for  the  sale  and  transfer  of  real  estate,  permit 
them  to  be  made  by  a  simple  scroll  of  the  pen.  All  contracts  other 
than  specialties  are  called  parol. 

29.  Parol. — By  far  the  larger  proportion  of  contracts  are  parol,  or 
as  they  are  sometimes  called,  simple  contracts.     All  implied  con- 
tracts are  parol  contracts.     Parol  contracts  are  all  contracts  that  the 
parties  have  not  placed  under  seal.     They  may  be  either  written,  oral 
or  implied.     So  far  as  importance  goes,  a  written  contract  is  of  no 
higher  order  than  an  oral,  yet  the  written  contract  often  facilitates 
its  own  proof. 

30.  As  to  Expression,  contracts  are  also  divided  into  two  classes, 
expressed  and  implied.     An  expressed  contract  is  one  whose  terms  are 
definitely  stated  and  agreed  to.     It  may  be  either  a  written  or  an  oral 
contract.     An  implied  contract  is  one  whose  terms  are  a  matter  of 

1  Alabama,  Arizona,  Arkansas,  California,  Colorado,  Georgia,  Indiana,  Indian  Ter.,  Iowa, 
Kansas,  Kentucky,  Louisiana,  Mississippi,  Montana,  North  Dakota,  Ohio,  Oklahoma,  Rhode 
Island,  South  Dakota,  Tennessee,  Texas,  Utah,  Washington. 

•  Connecticut,  Delaware,  Illinois,  Michigan.  Missouri,  New  Mexico,  New  Jersey,  New 
York,  North  Carolina,  Oregon,  Pennsylvania,  Washington,  Wisconsin,  West  Virginia. 


CONTRACTS.  19 

inference  or  deduction  from  the  acts  of  the  parties.  The  law  pre- 
sumes or  infers  such  agreements  to  have  actually  been  made,  as  justice 
and  equity  would  dictate,  or  as  would  give  an  honest  explanation  of 
the  acts  of  the  parties  concerned. 

When  I  get  upon  a  street  car  for  transportation,  although  nothing  is  said 
at  the  time  of  entering  about  the  payment  of  any  fare,  yet  the  law  implies 
an  agreement  on  my  part  to  pay  the  usual  fee. 

There  is  also  an  implied  condition  to  every  contract,  that  if  I  fail 
to  perform  my  part  thereof  I  will  pay  the  other  party  such  damages 
as  he  may  have  sustained  by  my  neglect  or  refusal.  Indeed,  it  is 
upon  this  theory  of  implied  contracts  that  the  law  often  gives  relief 
where  otherwise  the  injured  party  would  be  remediless. 

31.  Contracts,  as  to  Time  of  Performance. — With  reference  to  the 
time  of  their  performance,  contracts  are  either  executed  or  executory. 
An  executed  contract  is  one  whose  conditions  are  already  fulfilled. 
If   the   conditions   are   to   be   performed    in   the    future,    it   is   an 
executory  contract.     A  contract  may  be  an  executory  one  to-day,  and 
to-morrow  it  may  become  an  executed  one.     This  distinction"  is  an 
important  one,  and  the  student  will  do  well  to  bear  it  in  mind. 

32.  Joint  Contracts  are  those  in  which  the  obligors  are  jointly 
bound  to  perform  the  obligation.     They  promise  to  perform  as  one 
person.     As  a  rule  if  an  action  be  brought  on  the  contract,  both 
must  be  sued.     In  like  manner  if  two  or  more  persons  be  interested 
in  the  proceeds  of  a  contract  they  cannot  split  up  the  claim  and  each 
sue  for  his  share  but  must  join  in  an  action. 

33.  Several  Contracts  are  agreements  in  which  each  promises  to  do 
the  whole  thing    promised.       But   one  performance,  however,  can 
be  legally  demanded.     Each  of  the  obligors  may  be  sued  for  the  entire 
debt.     When  several  persons  are  jointly  or  jointly  and  severally  liable 
on  a  contract  and  one  discharges  it,  he  can  compel  the  others  who 
have  not  paid  their  share  to  contribute. 


20  CONTRACTS. 


CHAPTER  V. 

PAKTIES. 

34.  Definition. — The  parties  to  a  contract  are  those  who  make  it, 
and  are  affected  by  its  terms. 

35.  General  Rule. — The  general  rule  is  that  all  persons,  aside  from 
a  few  well  defined  exceptions,  may  make  contracts.     These  excep- 
tions the  law  makes  either  to  shield  the  persons  themselves  from  their 
own  acts,  or  to  protect  the  government.     In  the  majority  of  cases  it 
is  the  former  reason.     Certain  classes  are  forbidden  to  make  con- 
tracts because  the  law  does  not  believe  them  to  know  what  is  for  their 
own  best  interests. 

36.  Exceptions. — The  general  rule,  however,  is  as  we  have  stated 
it,  and  the  exceptions  arise  for  two  reasons,  as  follows : 

{1.  Lunacy. 
2.  Idiocy. 
3.  Intoxication. 
4.  Profligacy. 

fl.  Infants. 

II.  LEGAL  DISABILITIES  IN  CASE  OF  -|  2.  Married  Women. 

[^  3.  Alien  Enemies. 

37.  Lunacy. — Lunatics  are  those  who  have  lost  their  reason,  and 
are,  therefore,  unable  to  understand  the  nature  and  effect  of  their 
acts.     The  minds  of  some  are  totally  destroyed,  while  others  are 
deranged  only  as  to  certain  things,  and   are  perfectly  sane  as  to 
others.     It  has  been  held  that  on  the  latter  subjects  a  lunatic  may 
contract  as  if  entirely  sane. 

It  is  also  admitted  that  if  an  insane  person  have  lucid  intervals,  he 
may,  during  those  intervals,  enter  into  contracts  that  will  be  binding 
upon  him  at  all  times. 

The  question  of  insanity  may  arise  when  one  party  seeks  to  avoid  a 
contract  he  has  previously  made.  As  the  law  always  presumes  the 
natural  thing  or  condition  to  exist,  his  insanity  must  be  shown  by 
the  lunatic  or  his  representative.  Until  this  is  shown  by  legal  evi- 


PARTIES.  21 

dence,  his  contracts  are  supposed  to  be  valid.  If  he  were  insane  at 
the  time  of  making  the  contract  he  can  avoid  it  or  affirm  it,  as  he  may 
choose.  Hence  his  contracts  are  voidable,  but  only  voidable  at  his 
option,  and  not  at  the  option  of  the  other  party  who  is  bound 
thereby. 

The  statutes  of  the  different  states  provide  that  all  persons  of 
unsound  mind  may  be  put  under  guardianship.  This  being  done  by 
a  competent  court,  the  legal  ability  to  contract  for  everything  (except 
in  certain  cases  for  necessaries),  is  taken  from  him  and  vested  in  the 
guardian.  This  is  true  of  idiots  and  spendthrifts  as  well.  Hence 
after  the  appointment  of  legal  representatives  their  contracts  are 
void.  (145  Ind.  673,  56  No.  E.  Rep.  98.) 

38.  Exceptions. — Like  all  persons  who  are  not  permitted  by  law 
to  contract  generally,  a  lunatic  is  allowed  to    make  bona  fide  con- 
tracts for  necessaries,  which  include  all  such  things  as  are  useful  to 
him,  and  proper  for  his  means  and  station  in  life. 

The  price  he  agreed  to  pay  may  not  be  upheld,  but  through  the 
theory  of  implied  contracts  a  reasonable  price  may  be  substituted. 

It  will  thus  be  seen  that  some  contracts  of  an  insane  person  are 
valid,  some  voidable,  and  others  that  are  actually  prejudicial  to  his 
interests  are  void. 

39.  Idiocy. — An  idiot  is  one  who  is  so  deficient  in  intellect  that  he 
is  incapable  of  understanding  the  nature  and  effect  of  his  agreements. 
For  his  own  protection  the  law  will  not,  therefore,  permit  him  to 
make  contracts  that  will  be  binding  upon  him,  excepting,  of  course, 
for  necessaries. 

40.  Intoxication,  when  so  complete  as  to  render  a  man  incapable 
of  acting  intelligently,  will  incapacitate  him  from  contracting.     As 
he  can  without  doubt  affirm  his  agreements  when  he  becomes  sober, 
his  contracts  are  voidable.     If  he  bought  goods  when  intoxicated,  he 
must  return  them  if  he  would  repudiate  the  purchase.      A  slight 
intoxication  will  not  render  him  incapable  of  contracting.     He  may, 
as  in  the  case  of  lunacy,  contract  for  necessaries.     When  one  has 
been  found  to  be  an  habitual  drunkard  his  property  is  cared  for  as  in 
lunacy,  by  a  conservator. 

41.  Profligacy. — When  a  person  is  found  by  due  process  of  law  to 
be  a  spendthrift,  he  may,  as  in  the  case  of  lunacy,  be  deprived  of  all 
control  over  his  property,  which  will  be  placed  in  charge  of  a  eon- 


22  CONTBACTS. 

servator.  This  is  done  on  the  ground  that  he  may  become  a  public 
charge.  He  is  not  presumed  to  be  a  spendthrift  until  so  proven,  and 
hence  any  contracts  he  may  make  up  to  this  time  are  valid,  unless 
fraud  can  be  proven,  but  after  the  appointment  of  a  conservator  his 
contracts  are  void. 

42.  Infancy. — In  the  eyes  of  the  law  every  person  is  an  infant 
until  he  has  become  of  age.     Males  in  most  states  become  of  age  at 
twenty-one.     In  some  states  a  female  becomes  of  age  at  eighteen1  and 
in  some  at  marriage  if  younger.8 

A  child's  first  birthday  is  the  first  day  of  his  second  year,  and  as 
the  law  does  not  regard  portions  of  a  day,  he  becomes  of  age  at  the 
first  moment  of  the  day  before  his  twenty-first  birthday. 

While  he  is  yet  a  child  the  law  does  not  regard  him  as  able  to 
know  and  defend  his  own  best  interests,  and  for  this  reason  seeks  to 
protect  him. 

43.  Ratification   of  Contracts  Made   by  Infants. — As    a   general 
rule  the  contracts  of  an  infant  are  voidable.     That  is,  he  may  either 
during  his  minority,  or  within  a  reasonable  time  after  he  becomes  of 
age,  avoid  the  contract  if  he  will.     If  the  contract  be  an  executed 
one,  as  for  instance  for  a  horse  which  has  been  delivered  to  him,  and 
he  now  seeks  to  recover  the  purchase  money  paid,  he  must,  if  pos- 
sible, also  return  the  horse. 

The  law  does  not  appear  to  be  well  settled  as  to  whether,  on  the 
principle  of  "silence  gives  consent,"  mere  silence  on  the  part  of  the 
infant  for  a  reasonable  time  after  becoming  of  age,  will  in  itself  be 
construed  as  a  ratification,  or  whether  he  may  wait  until  the  other 
party  seeks  to  enforce  it  against  him  before  disaffirming  it.  Some 
decisions  have  held  one  way  and  some  another.  A  few  states  go  even 
farther,  and  require  the  ratification  to  be  express  and  in  writing. 

44.  Who  may  take  Advantage  of  the  Rule. —The  right  to  plead 
infancy  as  a  defense  is  a  personal  privilege,  and  belongs  only  to  the 
infant.     It  cannot  be  used  by  the  other  -party  to  the  contract  for  he 
is  bound  by  the  contract  if  the  infant  so  desires. 

It  makes  no  difference  that  the  adult  had  no  knowledge  of  the 
infancy  or  lunacy  of  the  other  party  to  the  contract  and  took  no 

•Alabama,  Arkansas, Colorado,  Connecticut,  Delaware,  Georgia,  Illinois,  Indiana, Iowa, 
Michigan.  Minnesota,  Montana,  Missouri,  Mississippi,  Maine,  Maryland,  New  Jersey,  Nev 
York,  New  Hampshire,  Nebraska,  Nevada,  Ohio,  Oklahoma,  Oregon,  Rhode  Island,  Soutli 
Carolina,  North  Carolina,  Texas,  Utah,  Vermont,  Wyoming,  Wisconsin,  Washington. 

*  Iowa,  Oregon,  Washington. 


PABTIES.  23 

advantage  of  him   still  the  infant  or  lunatic  may  disaffirm  if  he 
wishes. 

It  is  good  advice  to  avoid  contractual  relations  with  an  infant  or 
a  lunatic,  for  if  the  contract  prove  valuable  to  him  he  may  retain  its 
benefits  and  on  the  other  hand  if  it  prove  onerous  he  may  avoid  it. 

45.  Necessaries. — While  it  is  the  general  rule  that  an  infant  can- 
not make  contracts  that  will  be  binding  on  him,  yet  there  are  excep- 
tions to  it.     He  may  make  valid  contracts  for  necessaries  furnished 
him.  The  price  he  may  agree  to  pay  will  not  be  upheld  if  it  be  exor- 
bitant, but  a  reasonable  one  will  be. 

Necessaries  include  food,  clothing,  shelter,  medical  attendance  and 
instruction  and  must  be  such  as  are  suitable  to  his  station  in  life  and 
within  his  means.  Hence,  what  would  be  deemed  necessaries  for  one 
might  be  luxuries  for  another. 

46.  Married  Women. — Under  the  common  law  during  the  life  of 
her  husband  the  legal  existence  of  the  wife  was  merged  in  that  of  her 
husband.     This  was  upon  the  principle  that  they  were  one  person. 
All  personal  property  she  may  have  had  at  the  time  of  her  marriage 
became  his,  and  as  this  took  her  means  to  pay  her  ante-nuptial  debts 
the  husband  was  charged  with  them.     She  could  make  no  contracts 
while  living  with  her  husband,  that  would  either  bind  him  or  her 
except  when  she  did  so  as  his  agent.     He  was  entitled  to  her  earn- 
ings.    But  if  he  did  not  supply  her  with  the  necessities  of  life  and 
she  were  not  at  fault  she  could  purchase  them  and  he  would  be  bound, 
it  being  implied  that  she  had  authority  to  act  as  his  agent. 

47.  Statutory  Changes. — There  is  perhaps  nothing  in  the  common 
law  that  the  statutes  of  the  several  states  have  changed  more  than  the 
rules  in  reference  to  married  women.     In  many  states  she  can  now 
hold  property  and  make  any  contracts  in  reference  to  it  the  same  as 
if  single.    At  marriage  she  may  retain  and  manage  her  own  property. 

48.  Alien  Enemies. — When  two  countries  are  at  war  the  subjects 
of  each  are  alien  enemies  to  the  subjects  of  the  other.     The  law  pro- 
hibits all  commerce  between  the  countries  and  makes  all  contracts  so 
made  void.     It  does  this  not  alone  because  the  interest  of  a  citizen 
might  become  antagonistic  to  his  government  but  in  order  to  prevent 
him  from  withdrawing  the  resources  of  his  country  to  the  benefit  and 
encouragement  of  the  enemy. 


24  CONTRACTS. 


CHAPTER  VI. 

ASSENT. 

49.  Meaning. — Assent  is  the  meeting  of  the  minds  of  the  parties 
to  a  contract  or  their  agreement  to  a  certain  thing.     This  consists  of 
two  parts — a  proposition  and  an  acceptance. 

50.  Proposition. — The  first  step  toward  the  making  of  a  contract  is 
to  make  a  proposition.     This  is  a  mere  offer,  and  so  long  as  it  is  not 
accepted  it  is  of  no  binding  force,  and  may  be  withdrawn.     As  a  rule, 
when  the  parties  are  together  when  a  proposition  is  made,  it  must 
be  accepted  at  once,  for  if  they  separate  it  cannot  be  accepted  later. 
The  general  rule  is  that  a  proposition  remains  open  for  a  reasonable 
time,  and  what  is  a  reasonable  time  must  be  determined  by  the  cir- 
cumstances of  each  case.     Of  course  a  proposition  may  be  withdrawn 
at  any  time  before  acceptance,  unless  the  proposer  be  paid  for  keeping 
the  proposition  open. 

51.  Proposition  with  Time. — When  one  makes  a  proposition  and 
states  a  definite  time  for  which  it  will  remain  good,  it  is  sufficient  if 
accepted  within  this  time,  provided  it  is  not  previously  withdrawn. 

52.  Written  Proposition. — When  a  proposition  is  made  by  letter, 
it  is  accepted  as  soon  as  the  letter  of  acceptance  is  mailed,  and  it 
matters  not  that  a  letter  of  withdrawal  be  mailed  before  the  letter  of 
acceptance,  provided  it  has  not  yet  reached  the  acceptor.     Such  a 
proposition  is  deemed  a  continuing  one  from  the  time  it  is  mailed 
until  it  be  received,  and  for  a  reasonable  time  thereafter.     Within 
this  period  it  may  be  withdrawn  at  any  time  previous  to  acceptance, 
but  it  is  not  withdrawn  until  the  notice  actually  reaches  the  one  to 
whom  the  offer  was  made. 

If  A  in  Boston,  on  the  first  of  January,  write  to  B  in  Chicago,  making 
an  offer,  and  this  letter  reaches  Chicago  on  the  3d,  and  B  forthwith  answers 
the  letter,  accepting  the  offer,  putting  the  letter  into  the  mail  that  day;  and 
though  on  the  second,  A  writes  withdrawing  the  offer,  and  his  letter  of 
withdrawal  reaches  B  on  the  fourth,  nevertheless  a  contract  has  been  made. 
Why? 


ASSENT.  25 

53.  A  Proposition  with  a  Condition. — Sometimes  an  offer  is  made 
saying  "If  there  be  no  answer  by  a  certain  time  I  shall  consider  the 
offer  accepted."     Although  no  word  be  received  during  the  time 
specified,  yet  there  is  no  contract,  for  the  offerer  has  no  right  to 
impose  such  a  condition.     On  the  other  hand,  if  the  offer  be  made 
saying  "If  no  word  is  received  from  yon  by  a  certain  time,  I  shall 
conclude  that  you  do  not  accept,"  and  no  word  is  received,  the  offerer 
is  safe  in  considering  it  no  contract.     This  is  in  effect  stating  the 
limit  of  time  for  which  the  offer  is  good. 

54.  Giving  an  Option. — We  have  seen  that  an  offer  may  be  made, 
which  is  to  hold  good  for  a  certain  length  of  time.     But  the  offer 
may  be  withdrawn  at  any  time  before  acceptance,  for  the  proposer  has 
not  been  paid  for  keeping  his  offer  open.     It  is  customary, 'therefore, 
in  order  to  be  sure  of  time  in  which  to  investigate  the  offer,  to  pay 
the  proposer  a  small  sum  for  keeping  the  offer  good  for  a  certain 
time.     This  is  called  "giving  an  option"  by  the  proposer,  or  "secur- 
ing an  option"  by  the  other  party.     When  the  proposer  is  thus  paid 
for  keeping  the  offer  good,  he  cannot  within  this  time  withdraw  it. 

A  and  B  are  publishers.  A  asks  B  what  he  will  take  for  the  whole 
edition  of  a  certain  book.  B  replies  §3,500.  A  gives  him  $10.00  for  the  option 
for  thirty  days.  In  twenty-nine  days  A  comes  for  the  books,  having  decided 
to  take  them.  Can  B  withdraw  his  proposition  ?  Why  ? 

A,  a  stock  buyer,  asks  B,  a  farmer,  what  he  will  take  for  a  drove  of 
cattle.  B  replies  $2,000,  but  A  does  not  accept  and  drives  away.  Changing 
his  mind,  he  returns  in  an  hour  and  says  he  will  take  the  cattle  at  the  offer, 
but  B  now  declines  to  sell  for  less  than  $2,500.  Has  A  a  right  to  the  cattle? 

55.  Acceptance. — The  parties  must  agree,  or  assent,  to  exactly  the 
same  thing,  and  in  exactly  the  same  sense,  or  one  of  the  essential  ele- 
ments of  a  valid  contract  is  lacking.     If  any  condition  is  added  to  the 
acceptance,  it  is  not  such  an  acceptance  as  will  constitute  an  agree- 
ment, for  the  minds  of  the  parties  do  not  meet.     It  will  amount, 
however,  to  a  new  proposition,  which  may  or  may  not  be  accepted  by 
the  original  proposer. 

A,  of  Chicago,  telegraphs  B,  of  New  York,  that  he  will  sell  him  five  car 
loads  of  good  corn  at  a  certain  price.  B  replies  that  he  will  take  it,  but  will 
expect  it  to  be  clear  yellow  of  first  quality.  Is  this  a  contract  ?  Why  ? 

When  both  the  proposition  and  acceptance  are  sent  by  mail  the 
acceptance  cannot  be  overtaken  and  withdrawn  by  a  telegram,  even 
though  it  reach  the  proposer  before  the  letter  of  acceptance.  There 
are  cases  to  the  contrary  however. 

56.  Implied  Acceptance. — No  set  form  of  acceptance  is  required, 


26  CONTRACTS. 

but  it  may  be  signified  by  a  nod,  a  wink,  a  motion  of  the  hand,  or  the 
drop  of  the  hammer  in  case  of  an  auction.  In  case  one  accepts  the 
benefits  of  an  offer,  the  law  will  imply  his  promise  to  pay  a  fair  price 
for  the  same. 

You  give  your  grocer  an  order  to  deliver  certain  groceries  at  your  house. 
Nothing  being  said  about  the  price,  the  law  will  imply  your  promise  to  pay 
a  reasonable  price  for  them. 

57.  Duress. — Not  only  must  the  acceptor  give  his  assent,  but  he 
must  give  it  freely  and  without  fear  of  compulsion.     If  one  be  thus 
compelled  to  give  his  assent,  he  is  said  to  be  laboring  under  duress, 
and  the  contract  is  not  binding  upon  him.     Duress  is  fear  of  personal 
injury  or  unlawful  imprisonment.     The  imprisonment  with  which  he 
may  be  threatened,  however,  must  be  unlawful,  and  the  threats  which 
cause  him  fear  must  be  such  as  are  calculated  to  inspire  fear  in  the 
mind  of  a  person  of  ordinary  firmness. 

58.  Fraud. — In  like  manner  assent    should   be  given  with  a  full 
understanding  of  the  thing  assented  to,  and  if  your  assent  has  been 
obtained  by  any  willful  deception  or  misrepresentation  on  the  part  of 
the  other  party,  you  are  not  bound  thereby.     So  far  as  you  are  con- 
cerned the  contract  is  voidable,  and  at  your  option. 

A  wishing  to  purchase  some  pear  trees  of  a  certain  variety,  goes  to  a 
nurseryman  for  them.  The  nurseryman  not  having  that  variety,  but  wish- 
ing to  make  the  sale,  falsely  represents  that  another,  but  inferior  kind,  is  the 
one  called  for.  After  taking  the  trees  home  A  is  informed  by  an  employee 
of  the  nurseryman  that  he  has  been  deceived,  and  insists  on  returning  the 
trees  and  demands  back  the  money  paid.  Can  he  return  the  trees  and  com- 
pel the  return  of  the  money  paid  ? 

59.  Mistake. — It   is  an   old    saying    that  "ignorance  of  the  law 
excuses  no  man,"  but  ignorance  of  a  fact,  if  mutual,  may  relieve  the 
parties  from  their  contract. 

A  goes  to  the  store  of  B  for  a  bushel  of  potatoes  of  a  certain  variety, 
which  he  wishes  to  plant.  Seeing  what  he  supposes  to  be  this  variety,  he 
purchases  them.  On  taking  them  home  he  discovers  them  to  be  another 
variety.  He  cannot  return  them,  for  B  did  not  sell  them  to  him  as  the 
variety  he  wished.  Had  B  thought  them  to  be  this  variety,  and  so  informed 
A,  then  the  mistake  would  have  been  mutual,  and  A  could  return  them. 

A  asks  B  what  he  will  take  for  an  arm  chair;  B  speaking  indistinctly 
says  $35,  but  A  thought  he  said  $25.  When  it  came  to  paying  for  the  chair 
they  differed  as  to  the  price.  As  their  minds  did  not  meet  on  the  same 
thing,  there  is  no  contract. 


CONSIDERATION. 


27 


CHAPTER  VII. 
CONSIDERATION. 


CONSIDERATION. 


I.  SUFFICIENT. 


1.  Benefit  to  Promisor. 

2.  Loss  to  Promisee. 

3.  Mutual  Promises. 


II.  NOT  USUALLY 
SUFFICIENT. 


\ 


1.  Gratuitous. 

2.  Impossible. 

3.  Moral. 

4.  Executed. 

5.  Illegal. 


60.  Definition. — Consideration  is  the  material  cause  which  moves 
a  party  to  enter  into  a  contract.  What  is  consideration  for  one  party 
is  subject  matter  for  the  other. 

It  is  one  of  the  essential  elements  of  a  valid  contract.  Without  it 
the  agreement  is  utterly  void  and  no  suit  can  be  maintained  upon  it. 

Not  everything  that  may  in  reality  serve  as  an  inducement  to 
enter  into  a  contract  is  considered  in  the  eyes  of  the  law  as  a  legally 
sufficient  consideration.  Legally  sufficient  consideration  is  divided 
as  follows : 

1.  BENEFIT  TO  PROMISOR,  r  These  are  usually  desig- 

)      nated  in  legal  docu- 
j      ments  as  valuable 


2.  Loss  OR  INCONVENIENCE  TO 
PROMISEE. 


3.  MUTUAL  PROMISES. 


I      considerations. 


61.  Valuable  Consideration  consists  of  (1)  a  benefit  to  the  prom- 
isor, (2)  loss  or  inconvenience  to  the  promisee,  or  (3)  mutual 
promises. 


28  CONTRACTS. 

A  goes  to  the  store  of  B  and  agrees  to  pay  him  $15  for  an  easy  chair. 
The  receipt  of  the  chair  is  a  benefit  to  A,  the  promisor,  and  its  delivery  a  loss 
to  B,  hence  it  is  a  legally  sufficient  consideration.  Had  A  agreed  to  give 
$15  and  B  agreed  to  deliver  the  chair  to  C,  this  would  still  be  a  sufficient 
consideration,  for  although  it  was  of  no  benefit  to  A,  yet  it  was  a  loss  to  B 
to  give  up  the  chair. 

From  this  illustration  we  see  that  the  consideration  need  not  pass 
directly  between  the  parties  to  a  contract,  but  may  go  to  a  third  per- 
son. 

62.  Mutual  Promises  will    support  each  other,  one   being  a  con- 
sideration for  the  other.     They  must,  however,  be  made  at  the  same 
time.     It  is  not  necessary  that  either  of  the  promises  be  to  do  some- 
thing.    It  is  sufficient  if  one  or  both  of  the  promises  be  to  refrain 
from  doing  something. 

If  A  promises  to  teach  B  a  trade  it  is  a  sufficient  consideration  for  a 
promise  from  B  to  remain  with  A  a  certain  length  of  time  and  serve  him. 

63.  Adequacy. — We  have  seen  that  there  must  be  a  consideration 
to  every  contract,  but  whether  the  thing  given  is  equal  in  value  to 
the  thing  received  does  not  ordinarily  concern  the  law.     It  is  sufficient 
if  it  have  some  substantial  value,  its  adequacy  being  left  to  the  par- 
ties themselves.     There  must,  however,  be  no  fraud  connected  with 
the  contract. 

Insufficient  consideration  may  be  divided  as  follows : 

1.  Gratuitous.  4.  Executed. 

2.  Impossible.  5.  Illegal. 

3.  Moral. 

64.  Gratuitous. — A  promise  for  which  there   is  no  consideration 
cannot  be  enforced.     There  is  no  benefit  to  the  promisor,  no  trouble 
or  loss  to  the  promisee.     Even  love  and  affection  will  not  support  a 
promise,  though  a  gift  will  be  upheld  in  an  executed  contract. 

A  owes  B  |50  due  to-day.  A  finding  it  difficult  to  raise  the  money  asks 
B  for  an  extension  of  30  days'  time  to  which  B  consents.  This  is  void  and  B 
can  sue  A  at  once  notwithstanding  his  promise. 

65.  Impossible. — A  promise  to  do  something  which  in  the  nature 
of  things  is  either  physically  or  legally  impossible  will  not  support  a 
contract.     It  is  not  a  sufficient  excuse,  if  it  is  only  extremely  difficult 
of  performance,  but  it  must  be  absolutely  impossible  from  the  nature 
of  things.     The  reason  of  this  is  that  the  promisee  could  not  have 
expected  the  promisor  to  fulfill  such  an  agreement  and  hence  making 
the  contract  was  sheer  folly  which  the  law  will  not  sanction. 


CONSIDEIiATIOtf.  29 

66.  Moral. — A  moral  consideration   is   not  of  itself   sufficient  to 
support  a   contract.      However    much  every  honest  man   will  feel 
obliged  to  fulfill  his  moral  obligations,  yet  the  law  does  not  deem  it 
its  duty  to  compel  him  to  do  so.     A  moral  obligation  to  pay  money  or 
to  perform  a  legal  act  is,  however,  a  good  consideration  if  followed  by 
an  expressed  promise  to  do  so,  if  there  was  at  one  time  a  legal  obliga- 
tion which  is  not  now  enforcible  on  account  of  the  interference  of 
some  rule  of  law.     Thus,  an  expressed  promise  to  pay  a  debt  con- 
tracted during  infancy  is  upheld  and  an  expressed  promise  to  pay  a 
debt  barred  by  the  Statute  of  limitations  or  bankruptcy  is  good  with- 
out further  consideration  because  it  is  a  moral  consideration  based  on 
what  was  once  a  legal  obligation  and  this  legal  obligation  is  not 
enforcible  because  of  the  interference  of  a  rule  of  law. 

An  adult  son,  being  sick  and  destitute  among  strangers  became  indebted 
for  care.  His  father  afterwards  promised  to  pay  this  account.  This  being 
merely  a  moral  obligation  on  the  part  of  the  father,  it  is  not  enforcible 
against  him.  Had  the  promise  been  made  before  the  service  had  been 
rendered,  it  would  have  been  binding  on  the  father. 

67.  Executed. — When  the  consideration  has  already  been  rendered 
voluntarily  and  not  at  the  request  of  the  other  party  it  is  said  to  be  a 
past  or  executed  consideration.     A  promise  made  in  consideration  of 
a  service  or  promise  already  received  or  for  an  act  of  forbearance  for 
which  there  is  no  expressed  or  implied  promise  to  pay  at  the  time  is 
not  a  sufficient  consideration  on  which  to  base  a  later  contract. 

Thus  a  creditor  forbears  to  bring  an  action  against  his  debtor  and 
this  proves  of  advantage  to  the  debtor,  yet  it  is  not  sufficient  to  sup- 
port a  later  promise  to  pay  for  the  advantage. 

None  can  make  himself  creditor  of  another  against  his  will.  For 
the  debtor  may  have  certain  reasons  for  wishing  to  settle  with  one 
rather  than  another.  So  where  one  makes  a  voluntary  payment  for 
another  the  law  will  not  imply  the  promise  of  the  debtor  to  repay  it. 

Where  one  knowingly  accepts  a  voluntary  service,  makes  no  objec- 
tion and  retains  its  benefits  when  he  could  have  refused  them  the  law 
will  imply  his  previous  request  for  it. 

An  infant  was  sent  to  school  in  want  of  clothes  which  were  supplied  him. 
He  returned  home  and  showed  them  to  his  father  who  allowed  him  to  keep 
them.  The  father  afterwards  promised  to  pay  the  bill.  He  was  held  liable 
for  retaining  the  benefits  when  he  could  have  rejected  them  his  previous 
request  was  implied. 

68.  Illegal. — A  promise  to  do  that  which  the  law  forbids  will  not 
be  held  good.     Were  the  law  to  do  so  it  would  be  lending  its  aid  to 
its  own  violation. 


30  CONTRACTS. 

Thus,  a  contract  to  sell  liquor  without  a  license  when  the  law 
requires  one,  is  illegal. 

69.  Lack  of  Consideration. — In  business,  many  cases  have   arisen 
in  which  the  parties  to  a  contract  evidently  concluded  they  had  pro- 
vided for  a  consideration  when  there  was  none  either  in  reality  or  in 
law. 

A  owes  B  $100  due  to-day.  B,  fearing  that  A  will  not  be  able  to  meet  the 
payment,  offers  to  take  $90  and  give  a  receipt  in  full  of  the  account.  Such  a 
payment  would  not  release  A  from  payment  of  the  balance.  There  is  no 
consideration  for  the  release.  If  the  debt  were  not  yet  due  and  they  settle 
for  $90  because  of  the  advance  payment,  it  will  be  upheld ;  or  if  there  was  a 
dispute  as  to  the  amount  due  they  could  compromise  for  less  than  B  claimed, 
and  it  would  be  a  complete  discharge  of  the  debt. 

The  performance  of  or  the  agreement  to  perform,  what  the  prom- 
isor is  already  bound  by  law  or  contract  to  do  for  the  promisee  can 
be  no  consideration  in  a  later  contract. 

A  owed  B  $293.07  on  a  note  due  in  six  months  from  date.  Three  years 
later  the  note  being  still  unpaid,  A  sent  B  a  check  for  $150.00  and  in  the 
body  of  the  check  wrote,  "In  full  of  all  notes  and  obligations  to  date."  In 
the  letter  which  accompanied  the  check,  he  stated  that  he  tendered  this 
amount  in  full  of  all  his  obligations  to  B.  B  retained  the  check,  sent  a 
receipt  "on  account,"  sued  for  the  balance  and  got  judgment.  See  49  N.  E. 
Rep.  1079,  70  N.  W.  Rep.  552  and  757  III.  531. 

A  was  hired  by  B  for  six  months.  At  the  end  of  one  month  A  was  dis- 
charged for  alleged  incompetency  and  in  the  letter  dismissing  him  was  a 
check  for  $75,  one  month's  salary.  In  the  check  was  written,  "In  full  for 
services."  A  retained  the  check  and  sued  the  firm  for  breach  of  contract. 
It  was  held  that  a  retention  of  the  check  was  a  bar  to  his  claim.  29  S.  E. 
Rep.  943. 

The  difference  between  the  above  cases  is,  in  the  first  one  there 
was  no  dispute  as  to  the  amount  due  and  in  the  second  case  there  was 
a  difference  of  opinion. 

70.  Failure  of  Consideration. — Where  the  consideration  which  at 
the  time  of  contracting  was  supposed  to  be  valuable  but  as  a  matter 
of  fact  was  utterly  worthless,  the  contract  is  void  and  money  paid 
thereon  may  be  recovered.     A  distinction  should  be  noticed  here  that 
a  mere  failure  to  receive  any  benefit  from  the  thing  received  is  not 
sufficient  to  invalidate  the  contract. 

Thus,  you  might  sell  A  a  patent  right,  which  proves  to  be  invalid,  and 
again  you  might  sell  him  a  valid  patent  right  to  an  article  out  of  which 
you  could  make  no  money. 

71.  Gifts  are  not  presumed.     A  naked   promise  to  make   a  gift 
cannot  be  enforced.     If  the  gift  has  passed,  it  becomes  an  executed 
contract  and  so  far  as  the  parties  are  concerned,  it  will  stand.     The 
question  is  often  raised  among  relatives. 


SUBJECT  MATTER. 


CHAPTER    Vin. 
SUBJECT  MATTER. 


EH 

X.          TT  UAX    JH.AI      J3Ji. 

(  a.  In  general  restraint  of  trade. 
1.   impol-  )  6.  In  general  restraint  of    mar- 

EH 

itic.       ]            riage. 

J| 

(  c.  Obstructive  of  public  justice. 

s 

II.    WHAT  CANNOT 

2.   Im-         (a-  Wagers. 

o 

BE,  BECAUSE 
AGREEMENT 
Is;— 

moral.  (6>  Sunday  desecration. 
3.  Fraud-  (  a-  As  to  one  party. 

S 

7 

ulent.    |6   As  to  third  parties. 

§ 

4.  To  commit  a  civil  wrong. 

5.  To  commit  a  crime. 

72.  Definition. — Subject  Matter  is  the  thing  agreed  to  be  done  or 
to  be  left  undone. 

73.  What  May  be  Subject  Matter. — The  general  rule  is  that  one 
may  contract  to  do  or  omit  to  do  anything  that  is  in  the  nature  of 
things  possible.     There  are,  as  we  shall  see,  exceptions  to  this  rule 
and  as  these  are  far  less  numerous  than  the  cases  falling  within  the 
rule  it  will  be  simpler  to  enumerate  and  classify  the  subjects  pro- 
hibited than  those  allowed. 

74.  What  Cannot  be  Subject  Matter. — The  law   will  not   permit 
certain  things  to  be  subjects  of   contracts  because  they  are, — (1) 
Impolitic,  or  opposed  to  the  welfare  and  progress  of  the  community; 
(2)   Immoral,  or  those  tending  to  corrupt  the  good  morals  of  the 
parties  or  community;  (3)  Fraudulent;  (4)  Agreements  to  commit  a 
civil  wrong;  (5)  Agreements  to  commit  a  crime  or  some  act  specially 
prohibited  by  law. 

75.  Contracts  In  General  Restraint  of  Trade.— Although  valid  in 
every  other  respect  if  the  fulfillment  of  a  contract  would  operate  in  any 


32  CONTRACTS. 

way  to  prevent  one  or  both  of  the  parties  or  an  outsider  from  engaging 
in  trade  at  all  or  in  trade  of  a  particular  kind,  the  law  deems  it  per- 
nicious and  it  is  void.  The  law  looks  with  favor  upon  trade  and 
therefore  fosters  it,  and  views  with  a  jealous  eye  any  restraint  that 
parties  may  seek  to  place  upon  it.  Au  agreement  for  partial  restraint 
will,  if  reasonable,  be  sustained,  but  its  unreasonableness  will  always 
be  presumed  and  its  reasonableness  must  be  shown.  What  is  reason- 
able must  be  determined  by  the  circumstances  of  each  case. 

A,  a  retail  dry  goods  merchant  of  Chicago,  sells  to  B  his  stock  of  goods 
and  good  will  and  agrees  not  to  engage  in  the  retail  dry  goods  busi- 
ness anywhere  in  the  State  of  Illinois  for  five  years.  This  is  evidently  an 
unreasonable  restraint  and  will  not  be  upheld.  Had  it  been  a  wholesale 
business  and  his  trade  extended  over  the  whole  state  then  it  would  not  be  an 
unreasonable  restriction. 

76.  Contracts   in   General   Restraint    of    Marriage. — For   a    like 
reason  contracts  placing  a  general  restraint  upon  marriage  are  void. 
Examples  of  this  are  frequently  seen  where  a  father  leaves  a  bequest 
to  his  daughter  on  condition  that  she  never  marries.   This  is  void,  but 
if  the  condition  be  that  she  do  not  marry  until  she  is  of  age  it  is  valid 
because  this  tends  to  protect  her  from  her  own  rashness.     A  bequest 
left  by  a  husband  to  his  widow  on  condition  that  she  do  not  marry 
again  has  been  held  to  be  reasonable  and  hence  valid,  she  having  been 
married  once.     A  marriage  brokerage  contract  being  an  agreement  to 
negotiate  a  marriage  for  a  consideration  is   void  and  money  paid 
thereon  may  be  recovered. 

77.  Contracts  for  Obstructing  Public  Justice. — Good  government 
is  deemed  an  absolute  essential  for  the  welfare  of  the  community,  and 
hence  any  agreement  by  which  the  aims  of  justice  may  be  thwarted 
is  void  on  the  ground  of  public  policy. 

An  agreement  to  suppress  the  evidence  in  a  criminal  case,  or 
withdraw  from  the  prosecution  of  it,  is  void.  So  is  an  agreement  by  a 
legislator  to  use  his  influence  to  secure  the  passage  of  a  certain  act, 
or  an  argeement  to  disclose  state  secrets.  No  agreement  that  is 
opposed  to  the  policy  of  the  law  will  be  enforced. 

78.  Wagers. — All  contracts  of  the  character  of  a  wager,  are  void. 
They  were  not  void  by  the  common  law,  but  have  been  made  so  by  most 
if  not  all  the  statutes,  and  in  some  states  money  so  lost  may  be 
recovered.     The  United  States  government  has  done  what  it  could 
to  aid  the  states  in  this  regard  and  has  forbidden  the  use  of  the  mails 
by  lotteries. 


SUBJECT    MATTER.  33 

79.  Sunday  Desecration. — The  old  English  common  law  was  very 
strict  concerning  the  proper  observance  of  Sunday.     It  forbade  all 
kinds  of  merchandising  on  that  day  and  all  labor  except  works  of 
necessity  or  charity  under  penalty.     This  law  has  been  substantially 
re-enacted  by  many  of  our  states,  but  generally  the  rule  has  been 
much  relaxed.     Some  go  so  far  as  to  make  void  any  contract  if  it  be 
made  on  Sunday,  but  the  greater  number  simply  refuse  to  permit  the 
courts  to  enforce  a  contract,  the  fulfilling  of  which  would  violate  the 
Sunday  statute. 

"Sunday  shall  include  the  time  from  midnight  to  midnight.  Whoever 
disturbs  the  peace  and  good  order  of  society  by  labor  (works  of  necessity  and 
charity  excepted),  or  by  any  amusement  or  diversion  on  Sunday,  shall  be 
fined  not  exceeding  $'25.  This  section  shall  not  be  construed  to  prevent 
watermen  and  railroad  companies  from  landing  their  passengers,  or  water- 
men from  loading  and  unloading  their  cargoes,  or  ferrymen  from  carrying 
over  the  water  travelers  and  persons  moving  their  families,  on  the  first  day 
of  the  week,  nor  to  prevent  the  due  exercise  of  the  rights  of  conscience  by 
whomever  thinks  proper  to  keep  any  other  day  as  a  Sabbath."  Extracts 
from  Illinois  statutes. 

80.  Fraud. — It  is  said  that  "the  law  abhors  fraud,"  and  certainly 
it  will  use  its  utmost  endeavors  to  ferret  out  and  thwart  its  object. 
The  fraud  in  an  agreement  may  be  perpetrated   (I)  by  one  of  the 
parties  upon  the  other,  or  (2)  by  one  or  both  of  the  parties  upon  a 
third  party. 

81.  Fraud  by  One   Party  upon   the   Other. — When   one    party  is 
induced  to  enter  into  a  contract  through  the  fraudulent  representa- 
tions of  the  other,  the  contract  is  voidable  at  the  option  of  the  injured 
party.     No  one  can  take  advantage  of  his  own  wrong  or  fraud  to 
avoid  a  contract.     When  both  parties  have  been  equally  guilty  of 
fraud,  neither  can  obtain  relief,  but  the  law  will  leave  them  Avhere  it 
finds  them.     Often  when  there  exists  a  confidential  relation  between 
the  parties,  a  mere  silence  will  amount  to  a  misrepresentation  or 
fraud  upon  the  other  party.     In  an  executed  contract  into  which 
fraud  has  entered,  the  injured  party  may  rescind  the  contract,  and 
return  whatever  benefit  he  may  have  received  within  a  reasonable 
time  after  the  discovery  of  the  fraud.     (See  Sec.  56.) 

82.  Fraudulent  Agreement   to    the  Injury   of    Third  Persons. — 
Any  contract,  the  performance  of  which  would  defraud  a  third  per- 
son, though  valid  as  between  the  parties  themselves,  is  void  at  the 
instance  of  such  third  person.     One  of  the  most  frequent  cases  of 
this  is  selling  personal  property  but  retaining  the  possession  thereof. 


34  CONTRACTS. 

This  acts  as  a  fraud  upon  creditors  who,  ignorant  of  the  sale,  and 
seeing  the  property  still  in  the  debtor's  possession,  extend  a  larger 
credit  to  him  on  account  of  it.  They  have  a  right  to  have  the  sale 
set  aside  and  the  property  applied  in  satisfaction  of  their  claims. 

Another  case  is  that  of  adebtor  who,  seeing  himself  about  to  fail, 
with  a  view  to  defrauding  his  creditors,  makes  a  sale  to  a  friend  who 
has  knowledge  of  the  object  of  the  sale.  Even  though  full  value  be 
given,  yet  the  creditors  can  have  the  sale  set  aside  or  declared  void, 
and  the  proceeds  applied  in  payment  of  their  claims.  The  friend  may 
in  this  way  lose  the  value  he  has  paid,  but  it  is  no  more  than  he 
deserves  for  attempting  to  defraud  others. 

It  is  not,  however,  considered  a  fraud  upon  other  creditors  for  a 
failing  debtor  to  make  an  assignment,  and  state  that  certain  creditors 
must  first  be  paid.  This  is  called  "assigning  with  preferred  credit- 
ors." 

83.  Contracts  Specially  Forbidden  by  Statute. — The  national  and 
the  different  state  statutes  forbid  certain  things  to  be  subjects  of 
contract.     Thus  most  of  the  states  have  by  statutes  prohibited  con- 
tracts to  pay  more  than  a  certain  per  cent  of  interest. 

It  seems  almost  superfluous  to  add  that  an  agreement  to  commit  a 
crime  is  void,  neither  can  one  make  a  valid  agreement  to  commit  a 
civil  wrong,  such  as  to  print  a  libel  or  commit  a  trespass. 

84.  Effect. — The  question  naturally  arises  what  is  the  effect  when 
parties  have  agreed  to  that  which  cannot  be  legal  subject  matter,  or 
in  other  words,  to  a  contract  that  is  void,  or  at  best  voidable.     No 
general  rule  can  be  laid  down  to  cover  all  cases,  for  the  courts  will  in 
many  cases  make  such  order  as  will  be  just;   but  usually  if  the  con- 
tract be  an  executory  one  it  will  be  as  if  never  made.     If  it  be  an 
executed  one  money  paid  can  often  be  recovered,  and  especially  is 
this  the  case  where  the  party  seeking  to  recover  has  been  defrauded, 
but  where  the  parties  have  been  equally  culpable  the  law  will  do  noth- 
ing for  either  but  will  leave  them  where  it  finds  them.     When  the 
contract  is  void  on  account  of    a  statutory  provision  the  statute 
usually  provides  its  own  penalty,  as  in  the  case  of  usury. 


REMEDIES.  35 


CHAPTER  IX. 
REMEDIES. 

85.  Definition. — It  has  long  been  the  boast  of  our  law  that  under 
it  there  is  provided  a  redress  for  every  wrong.     The  legal  means 
which  the  law  uses  for  the  purpose  are  called  its  remedies.     In  case 
the  wrong  is  a  public  one,  it  is  called  a  crime,  and  its  punishment  is 
provided  for  by  the  criminal  law.      It  is  however,  particularly  to 
wrongs  against  the  individual  that  this  work  is  addressed.      The 
remedies  provided  for  this  purpose  are  termed  civil  remedies.     These 
are  always  secured  through  the  formality  of  "a  suit  at  law,"  for  it  is 
a  maxim  of  law,  "That  no  man  shall  be  condemned  unheard,"  or 
"Every  man  has  his  day  in  court." 

86.  Legal  Steps. — The  following  are  the  formal  steps  to  be  taken 
by  a  creditor  for  realizing  on  an  account  against  his  debtor: 

I.  Summons. 

II.  Trial. 

III.  Judgment. 

IV.  Execution. 
V.  Levy. 

VI.     Sale. 

87.  Summons. — The  first  step  is  to  secure  from  the  clerk  of  the 
court  a  summons,  and  have  it  served  upon  the  defendant.     This  is 
in  effect  a  notice  to  him  of  the  plaintiff's  demand,  and  the  day,  place 
and  hour  of  trial,  that  he  may  have  the  opportunity  of  being  present 
and  of  making  his  defense. 

88.  The  Trial  is  conducted  by  a  regular  and  well  understood  code 
of  rules,  each  party  being  allowed  at  the  proper  time  to  offer  evidence 
in  his  own  behalf.     It  will  be  well  for  the  student  to  understand  that 
the  plaintiff  must  prove  his  case  by  a  preponderance  of  the  evidence. 
The  debtor  is  not  presumed  to    owe   the  debt,  and  therefore,  the 
creditor   (plaintiff)   must  overcome  this  presumption  by  producing 


36  CONTRACTS. 

more  evidence  that  he  does  owe  it  than  the  defendant  produces  that 
he  does  not. 

89.  Judgment. — If  the  case  be  heard  by  a  jury  their  decision  is 
called  a  "verdict."     The  verdict,  when  "entered"  is  called  a  judg- 
ment and  becomes  a  part  of  the  written  records  of  the  court.     This 
judgment  varies  according  to  the  remedy  provided  for  the  wrong 
which  the  evidence  shows  to  have  been  done.     When  a  judgment  is 
entered  in  a  "court  of  record"  it  usually  becomes  a  lien  upon  all  real 
estate  owned  by  the  debtor  in  the  county.     So  far  the  remedy  has 
proved  to  be  of  little  satisfaction  to  the  creditor,  for  though  he  has 
a  judgment,  he  seems  as  far  as  ever  from  securing  satisfaction  in  the 
way  of  money.     But  these  steps  have  all  been  necessary  that  the 
agencies  of  the  law  might  make  no  error  in  their  procedure,  for  to 
do  so  would  be  quite  as  great  a  wrong  against  the  debtor  as  not  to 
provide  any  remedy  for  the  creditor.     So  far  the  steps  taken  have 
been  to  fix  the  liability  with  certainty,  the  remaining  steps  will  be 
taken  for  the  purpose  of  realizing  upon  that  established  liability. 

90.  Execution. — This  is  an  order  issued  by  the  court  to  its  execu- 
tive officer  (constable  or  sheriff),  directing  him  to  seize  the  property 
of  the  debtor  and  convert  it  into  cash,  that  the  judgment  may  be 
paid.     The  execution  is  usually  first  served  upon  the  debtor,  that  is, 
read  to  him,  and  a  demand  made  upon  him  by  the  officer  for  either 
cash  or  property  with  which  to  satisfy  it. 

91.  Levy. — In  case  the   debtor   refuses   or  neglects  to  turn  out 
property  in  satisfaction  of  the  execution  when  it  is  served  upon  him, 
the  officer  may  seize  any  such  property  he  can  find  belonging  to  the 
debtor.     This  is  called  "making  a  levy."      Property  so  seized  is, 
after  being  advertised  according  to  law,  exposed  for  sale,  usually  by 
auction  to  the  highest  bidder.      The  proceeds  are  first  applied  in 
satisfaction  of  the  costs  and  then  to  the  claim  itself,  after  which, 
anything  remaining  is  turned  over  to  the  debtor. 

92.  Exemptions. — Not  all  property  owned  by  the   debtor  is  sub- 
ject to  levy  under  an  execution.     The  several  states  have  passed 
statutes  called  "exemption  laws,"  by  the  terms  of  which  certain 
property  of  certain  persons  is  vouchsafed  to  them.     This  is  to  prevent 
the  individual  from  being  so  deprived  of  the  necessities  of  life,  or  of 
resources  by  which  these  necessities  may  be  obtained,  as  to  be  in 
danger  of  becoming  a  public  charge.     As  a  rule,  heads  of  families  are 


REMEDIES.  37 

the  most  favored  class  in  this  regard.  As  this  is  a  matter  of  statutory 
regulation,  the  student  should  consult  the  statutes  of  his  own  state 
for  further  details.  (See  page  242.) 

93.  Garnishment. — The  debtor  may  have  no   property  subject  to 
execution,  but  another  may  owe  him  on  account,  note  or  other  form 
of  indebtedness.     This  person  may  be  called  in  and  made  to  testify 
as  to  the  amount  of  such  indebtedness.     A  judgment  will  then  be 
entered  against  him  for  such  amount  as  may  bo  due,  and  in  favor  of 
the  plaintiff.     This  is  called  "garnisheeing  the  debt  of  another." 

94.  Replevin. — When  a  party  fails  to  perform  that  which  he  has 
contracted  to  do,  the  law,  as  we  have  seen,  gives  to  the  injured  party 
a  redress.     This  redress  is  in  nearly  all  cases  a  money  damage.     The 
law  does  not  usually  compel  a  party  to  literally  perform  his  contract, 
neither  can  he,  as  a  rule,  be  imprisoned  for  not  doing  so.     There  are 
cases,  however,  when  the  law  does  not  deem  a  money  compensation  a 
just  equivalent.     One  of  these  is  the  unlawful  taking  and  detaining 
of  the  goods  of  another.     The  remedy  for  this  is  an  action  of  replevin. 
The  executive  officer  of  the  court  takes  possession  of  the  goods,  and 
if  after  trial  the  judgment  is  in  favor  of  the  plaintiff,  the  actual  goods 
are  delivered  to  him;  but  if  in  favor  of  the  defendant,  the  goods  are 
returned  to  him.     The  scope  of  this  action  has  been  generally  much 
enlarged  by  statute,  until  now  it  embraces  all  cases  of  unlawful  deten- 
tion of  the  goods  of  another,  whether  the  original  taking  was  lawful 
or  not.     It  is  certainly,  where  applicable,  a  wholesome  remedy,  and 
without  it  the  law  would  in  such  cases  come  far  short  of  giving  com- 
plete redress. 

95.  Attachment. — In  many  cases,  before  the  plaintiff  could  comply 
•with  the  long  formalities  of  a  suit  at  law,  and  then  secure  an  execu- 
tion, the  defendant  would  have  put  all  property  out  of  his  hands,  or 
would  be  out  of  the  state.     In  such  cases  the  court  will  issue  an  attach- 

•ment.  This  is  in  effect  reversing  the  order  of  the  steps,  bringing 
the  execution  first,  after  which  comes  the  trial,  judgment,  etc.  In  Illi- 
nois there  are  nine  statutory  grounds,  one  of  which  must  be  sworn  to 
by  the  plaintiff  or  his  agent,  before  he  can  have  the  benefits  of  this 
action.  It  is  a  grave  thing  to  deprive  a  man  of  his  property  before  it 
is  legally  determined  that  he  is  indebted  to  the  plaintiff. 

In  most  states  the  plaintiff  in  an  attachment  case  must  give  a 
bond  before  the  writ  will  issue.     The  bond  is  conditioned  that  the 


38  CONTBACTS. 

plaintiff  will  reimburse  the  defendant  for  any  loss  occurring  to  him 
should  the  attachment  prove  to  be  unlawfully  sued  out. 

96.  Injunction. — This  may  be  said  to  be  a  negative  remedy.  It 
is  rather  to  prevent  an  injury  than  to  right  one  already  done.  If  A 
is  about  to  do  that  which  would  be  an  irreparable  injury  to  B,  he  can 
secure  an  injunction  against  A.  This  is  the  order  of  the  court 
restraining  A  from  doing  the  act. 

97.  Specific  Performance. — This  is  perhaps  the  only  genuine  case 
where  the  law  will  compel  a  party  to  literally  perform  his  contract. 
It  will  not  lie  for  every  contract.  It  will  lie  only  in  a  few  well 
defined  cases,  and  these  usually  relate  to  real  estate. 


CHAPTER   X. 
DEFENSES. 

98.  Meaning. — While  it  may  be  true  that  the  defendant  has  not 
fulfilled  his  contract  in  every  particular,  or  not  at  all,  yet  there  may 
be  some  legal  excuse  for  his  failure  to  do  so.     Any  reasons  which  he 
may  offer,  and  which  the  law  will  accept  as  relieving  him  from  the 
consequences  of  his  failure,  are  called  his  defenses. 

The  principal  defenses  are:  (1)  Statute  of  Frauds;  (2)  Statute 
of  Limitations;  (3)  Tender;  (4)  Payment;  (5)  Performance;  (6) 
Forfeiture;  (7)  Set  off;  (8)  Recoupment. 

STATUTE  OF  FRAUDS. 

99.  The  Statute  of  Frauds  was  a  famous  English  statute,  passed 
in  the  reign  of  Charles  II.,  and  since  substantially  re-enacted  in  the 
statutes  of  most,  if  not  all  the  states.     It  provided  that  certain 
classes  of  contracts  must  be  in  writing  in  order  to  be  valid.     It  is,  in 
fact,  a  question  of  evidence.     The  statute  forbids  any  oral  testimony 
to  be  introduced  to  prove  the  contract.     If  it  be  not  in  writing,  so 
that  the  contract  itself  can  be  introduced,  the  plaintiff  is  simply 
unable  to  make  out  a  case,  which  he  must  do.     The  defendant  then 
objects  to  all  oral  evidence,  and  wins  his  point,  not  by  the  strength 
of  his  own  defense,  but  by  the  weakness  of  the  plaintiff's  case.     To 


Of  FfcAUDS.  39 

contracts  falling  within  the  list  it  simply  adds  another  essential  to 
the  four  already  considered,  but  as  the  question  is  only  raised  as  a 
defense,  it  is  considered  in  that  connection  here.  It  was  called  the 
Statute  of  Frauds  because  the  object  of  requiring  certain  contracts 
to  be  in  writing  was  to  prevent  frauds  and  perjuries. 

The  statute  provides  that  the  following  classes  of  contracts,  among 
others,  must  be  in  writing : 

I.  Contracts  for  the  sale  of  any  interest  in  lands. 

II.  Leases  of  land,  for  more  than  one  year  (with  certain  excep- 
tions). 

III.  Contracts  by  their  terms  not  to  be  performed  within  one 
year. 

IV.  Contracts    made    upon    consideration    of    marriage,   except 
mutual  promises  of  marriage. 

V.  Contracts  to  answer  for  the  debt,  default  or  miscarriage  of 
another. 

VI.  Contracts  for  the  sale  of  goods,  chattels  or  choses  in  action 
for  the  price  of  $50  or  more,  unless : 

1st.    The  buyer  receives  a  part  of  the  thing  purchased; 
2d.     The  buyer  pays  part  of  the  purchase  price; 
3d.     The  sale  be  by  auction. 

100.  Contracts  for  the  Sale  of  any  Interests  in  Land.  — The  sale  of 
lands  was  always  considered  of  much  importance,  and  hence  it  is  not 
surprising  that  this  was  made  an  important  feature  of  this  statute. 
Indeed   under   the  American  system  of  registering  titles,  the  con- 
veyance itself   must  of   necessity  be   evidenced   by   writing.      The 
statute  includes  not  only  the  sale  (the  deed)  itself,  but  the  contract 
to  sell  as  well. 

A,  in  the  presence  of  witnesses,  offers  to  sell  to  B  a  certain  piece  of  real 
estate  for  a  certain  price.  B  accepts  the  offer.  They  agree  to  meet  on  a 
future  day,  when  B  is  to  pay  the  purchase  price  and  A  is  to  deliver  the  deed 
of  transfer.  On  the  day  set  they  meet,  but  A,  having  changed  his  mind, 
refuses  to  transfer  the  property.  B  has  no  remedy. 

101.  Leases  of  Land  for  more  than  one  year.1 — Long  verbal  leases 
would  certainly  lend  an  inducement  to  fraud,  and  many  perjuries  would 
result  from  relying  on  the  memory  of  witnesses  for  the  provisions  of 
such  a  contract.     The  statutes  of  the  states  are  not  all  uniform  as  to 
the  maximum  verbal   lease  permitted,  some  allow  two  and  others 
three  years. 

'Arizonia,  Alabama,  California,  Colorado,  Delaware,  Idaho,  Illinois,  Iowa,  Kansas, 
Kentucky,  Michigan,  Minnesota,  Mississippi,  Montana,  Nebraska,  Nevada,  New  York, 
Oregon,  Rhode  Island,  Texas,  Virginia,  West  Virginia,  Wisconsin,  Wyoming. 


40  CONTRACTS. 

It  becomes  an  important  question  whether  the  year  referred  to  is 
to  begin  at  the  time  of  making  the  lease  or  on  the  day  it  goes  into 
operation. 

The  language  of  the  English  Statute  in  reference  to  this  section 
was  "From  the  making  thereof,"  and  this  langange  has  been  copied 
in  many  of  the  states.  In  these  latter  states  the  year  counts  from 
the  day  of  making  the  lease.1  When  this  phrase  or  its  equivalent 
has  not  been  used  in  the  statute,  the  year  is  to  be  considered  as  refer- 
ring to  the  duration  of  the  term.8 

102.  Contracts  by  Their  Terms  Not  to  Be  Performed  within  One 
Year  from  the  Making  thereof. — There  is  certainly  no  provision  of 
this  statute  more  salutary  than  this.      Experience  has  shown  the 
danger  that  exists  in  allowing  transactions  of  a  remote  date  to  rest 
solely  on  the  testimony  of  witnesses.     They  may  not  at  the  time 
have  had  a  clear  understanding  of  the  agreement,  and  even  though 
they  had,  they  may  now  honestly  differ  in  their  recollections  of  it. 
It  may  seem  that  sometimes  it  works  a  hardship,  but  it  must  be 
remembered  that  it  is  a  part  of  the  law  which  every  one  is  supposed 
to  know,  and  he  who  neglects  to  take  advantage  of  its  provisions  has 
no  one  to  blame. 

A  verbally  contracts  in  June  with  B  for  his  services  for  one  year  from  the 
first  of  the  following  July.  This  is  not  binding  upon  either,  for  by  its  terms 
it  is  not  to  be  performed  within  a  year. 

A  part  performance,  such  as  B  working  for  the  first  four  months 
of  the  term  will  not  relieve  the  parties  from  the  provisions  of  the 
statute.  B  can  however,  collect  for  the  value  of  the  services  actually 
rendered,  and  if  he  perform  his  part  entirely  he  can  collect  the  entire 
consideration  previously  agreed  upon. 

It  will  be  observed  that  the  contract  must  be  one  that  is  not  "By 
its  terms"  to  be  performed  within  one  year.  If  it  may  be  performed 
within  a  year,  but  is  prolonged  beyond  that  term,  the  statute  does 
not  apply. 

103.  Contracts  Made  upon  Consideration  of  Marriage,  except  Mutual 
Promises  of  Marriage. — This  section  has  reference  more  particularly 
to  a  custom  more  common  formerly  than  now.     It  was  an  agreement 
made  by  the  parent,  guardian  or  relative  of  the  prospective  bride  with 
the  groom,  by  which  he  or  they  were  to  settle  a  certain  amount  of 

1  Illinois,  New  Jersey,  Massachusetts,  Pennsylvania. 
*  Colorado,  Georgia,  Iowa,  New  York. 


STATUTE   OF   FRAUDS.  41 

property  upon  her  to  hold  in  her  own  right.  This  agreement  was 
made  of  course  in  consideration  of  marriage,  and  this  statute  requires 
it  and  all  similar  contracts  to  be  written.  Mutual  promises  of  mar- 
riage, however,  are  not  included  in  the  provisions  of  the  statute. 

104.  Contracts  to  Answer  for  the  Debt,  Default  or  Miscarriage  of 
Another. — Perhaps  no  provision  of  this  statute  is  more  frequently 
violated  than  this.     Often  the  contract  is  made  verbally  and  fulfilled, 
the  parties  never  dreaming  that  they  could  not  have  been  compelled 
to  fulfill  it  or  suffer  the  consequences.     The  language  of  the  statute 
describes  a  guaranty,  and  from  the  phraseology,  "Debt,  default  or 
miscarriage"  it  will  be  seen  to  include  not  only  cases  arising  out  of 
contract,  but  out  of  tort  as  well. 

A  and  B  entering  C's  store,  B  says  to  C,  "Let  A  have  §50  worth  of  goods, 
and  if  he  does  not  pay  for  them  I  will."  This  is  not  valid  unless  in  writing, 
for  it  is  a  contract  to  answer  for  the  debt  of  another.  Had  B  said,  "Let  A 
have  §50  worth  of  goods  and  I  will  pay  for  them;"  this  would  have  been 
good,  though  not  in  writing,  for  it  is  B's  debt,  and  not  a  contract  to  answer 
for  the  debt  of  another. 

It  matters  not  in  what  words  the  contract  be  stated  if  it  be  a  con- 
ditional contract,  that  is,  to  pay  if  another  does  not,  then  it  comes 
within  the  meaning  of  the  statute. 

A  owes  B  a  debt,  the  exact  amount  of  which  is  not  determined.  C  for  a 
consideration  agrees  to  pay  this  debt.  This  need  not  be  in  writing,  for  it  is 
an  absolute  agreement,  and  not  conditional. 

A  secures  a  position  of  trust  in  a  bank  and  gives  B  as  a  reference  as  to  his 
honesty.  B  says  that  he  will  guarantee  the  faithful  performance  of  A's 
duties.  This  will  not  be  binding  unless  in  writing. 

The  A  Co. ,  a  corporation,  had  owed  B  for  some  time  and  at  B's  suggestion, 
C,  D  and  E,  all  directors  of  the  A  Co.,  gave  their  joint  note  to  B  for  the 
indebtedness.  B  was  not  able  to  collect  the  note.  Why?  26  So.  Rep.  981. 

105.  Contracts  for  the  sale  of  Goods,  Chattels  or  Things  in  Action. — 
This  provision  of  the  old  English  statute  has  not  always  been  re-en- 
acted by  the  states,  for  change  of  possession  of  personal  property 
usually  follows  quickly  upon  a  change  of  its  ownership.     Many  states 
have,  however,  adopted  it,  but  the  amount  of  the  sale,  which  may  be 
verbal,  varies  in  the  different  states.     In  Illinois,  and  perhaps  one  or 
two  other  states,  this  section  has  not  been  enacted,  and  hence  does 
not  apply  there.     In  Maine,  New  Jersey,   Missouri  and  Arkansas  the 
amount  stated  is  $30.00.     In  Iowa  and  Florida  a  contract  for  sale  of 
personal  property  for  any  amount  must  be  written.    (See  sections  291 
and  294.) 


CONTRACTS. 


CHAPTER  XL 
STATUTE  OF  LIMITATIONS. 

106.  Meaning. — Statutes  of  limitations  proceed  upon  the  maxim 
that  legal  rights  should  be  asserted  within  a  reasonable  time,  and 
beyond  that  the  law  will  not  lend  its  aid  to  the  injured  party  to  secure 
his  rights.  They  have  often  been  called  statutes  of  repose,  for  after 
a  certain  time  the  action  is  at  rest  so  far  as  the  law  is  concerned, 
though  the  moral  obligation  still  exists. 

The  common  law  fixed  no  limits  within  which  an  action  might  be 
brought,  so  the  matter  has  been  regulated  by  statutes.  When  the 
time  is  past  in  which  an  action  may  be  brought,  it  is  said  to  be 
"Barred  by  the  statute  of  limitations,"  or  "outlawed." 

TABLE  OF   LIMITATIONS. 


STATES, 

Open 
Accounts. 

Contracts  in 
Writing. 

Judgments. 

STATES. 

Open 
Accounts. 

Contracts  in 
Writing. 

Judgments. 

3 

6 

20 

Nebraska  

1 

5 

5 

Arizona  .             .       

3 

5 

5 

Nevada  

0 

4 

5 

Arkansas      

3 

5 

10 

New  Hampshire  • 

6 

6 

°0 

9, 

4 

5 

6 

6 

90 

Colorado            

6 

6 

6 

New  Mexico 

4 

6 

7 

Connecticut  

6 

6 

New  York         

6 

6 

">0 

Delaware.             

3 

6 

20 

s 

ft 

10 

District  of  Columbia. 

3 

3 

North  Dakota  

6 

6 

90 

Florida  

g 

5 

90 

Ohio  

6 

15 

91 

Georgia  

4 

6 

7 

Oklahoma     ... 

3 

5 

5 

Idaho  .... 

4 

5 

6 

Oregon  

6 

6 

10 

Illinois  

5 

10 

20 

Pennsylvania  

6 

6 

90 

Indiana       

6 

10 

20 

Rhode  Island  .  .  *  

6 

fi 

90 

Iowa.            

5 

10 

20 

South  Carolina 

fi 

fi 

90 

Kansas  

3 

5 

5 

South  Dakota  

6 

r> 

90 

Kentucky  

9, 

5 

15 

6 

6 

10 

Louisiana  

3 

5 

10 

Texas  

9, 

4 

10 

Maine  

6 

6 

90 

Utah  

9, 

4 

5 

Maryland  

3 

3 

19, 

Vermont  

6 

6 

8 

Massachusetts  

6 

6 

90 

Virginia  

9, 

5 

10 

Michigan  

fi 

6 

10 

Washington  

3 

6 

6 

Minnesota  

6 

6 

10 

\Vest  Virginia  

5 

10 

10 

Mississippi  

8 

6 

7 

Wisconsin  

6 

6 

?,0 

Missouri  

5 

10 

90 

WVoming  

8 

5 

5 

Montana  

5 

8 

10 

STATUTE   OF   LIMITATIONS.  43 

107.  When  the  Time  Begins  to  Run. — In  general  the  time  mentioned 
in  the  statute  begins  to  run  from  the  very  first  day  the  action  could 
have  been  brought.     And  this  would  be  the  case  even  though  the 
party  did  not  know  of  his  right  of  action  until  long  after.     In  a  run- 
ning account,  or  note  on  which  there  have  been  payments,  the  time 
begins  at  the  last  payment.     The  payment  of  interest  will  have  the 
effect  of  keeping  the  debt  alive.     By  the  English  statute  the  time 
begins  to  run  from  the  date  of  a  note  payable  on  demand,  but  the 
statutes  of  most  states  have  provided  for  this  case. 

108.  Saving   Clause. —  There  are   certain  reasons  which  the    law 
will  recognize  as  valid  excuses  for    not  bringing  an  action  within 
the  prescribed   time.     These  are  said  to   take  the  case  out  of  the 
statute.     The  ones  usually  recognized  are  infancy,  coverture,  insan- 
ity, imprisonment  and  absence  from  the  state.     They  are  said  to  be 
"disabilities,"  and  the  person  successfully  pleading  one  of  them  is 
said  to  be  laboring  under  a  disability. 

As  a  rule,  when  the  disability  exists  at  the  time  the  action  accrues, 
the  statute  does  not  begin  to  run  until  the  disability  has  been 
removed.  The  state  statutes  differ  as  to  the  length  of  time  allowed 
for  bringing  the  action  after  the  disability  has  been  removed.  The 
old  English  statute  allowed  six  years.  In  many  states  the  statute 
will  not  be  suspended  by  a  disability  intervening  after  the  action 
accrues.  The  five  disabilities  mentioned  above  extend  to  the  plain- 
tiff, but  only  the  last  one,  absence  from  the  state,  also  applies  to 
the  defendant. 

A  of  Chicago  owes  B  of  Chicago  on  a  note.  When  the  note  falls  due  A  is 
abroad  and  remains  out  of  the  state  for  a  year.  The  statute  does  not  begin  to 
run  until  he  returns. 

109.  Acts  and  Admissions  That  Revive  the  Claim. — The  object  of 
the  statute  is  to  protect  the  debtor  against  claims  so  stale  that  the 
evidence  to  rebut  them  might  not  now  be  found.     It  also  proceeds  on 
the  supposition  that  the  debtor  has  paid  the  claim.     In  case,  there- 
fore, there  is  an  expressed  promise  to  pay  the  debt,  the  statute  will 
begin  to  run  again  from  the  day  of  such  promise.     The  English  law 
did  not  require  this  promise  to  be  in  writing,  but  the  statutes  of 
many  states  do  so  require  it.1     A  voluntary  payment  by  the  debtor, 

'being  in  the  nature  of  an  acknowledgment  of  the  debt,  and  showing 

'California,  Georgia,  Idaho, Iowa,  Kansas,  Louisiana,  Michigan,  Minnesota,  Missouri, 
Montana,  Nebraska,  New  Jersey,  New  Mexico,  New  York,  North  Carolina,  Ohio,  Oregon, 
South  Dakota,  Utah,  Vermont,  Washington,  West  Virginia,  Wyoming. 


44  CONTRACTS. 

an  intention  to  pay  it,  will  revive  a  debt  even  though  it  be  already 
barred. 

It  should  be  observed  that  this  statute  must  be  specially  offered  as 
a  defense  to  an  action,  and  a  desire  shown  to  take  advantage  of  it,  for 
the  courts  will  not,  of  their  own  motion,  take  notice  that  the  claim 
ought  not  to  be  recovered  on,  or  is  barred. 

110.  Statutes  Vary  in  Different  States. — The  length  of  time  within 
which  a  suit  must  be  brought,  varies  in  the  different  states,  and  this 
frequently  results  in  suddenly  leaving  a  creditor  without  remedy. 
For  instance,  A  owes  B  an  open  account  in  the  state  of  Michigan, 
where  the  statute  is  six  years.     The  account  being  two  and  a  half 
years  old,  B  feels  secure  that  he  yet  has  three  and  a  half  years  within 
which  to  bring  his  action,  but  suddenly  A  moves  to  California,  where 
the  limit  is  two  years,  which  is  already  past.     B  is  without  remedy. 
On    the    other  hand,  these  conditions  are  sometimes    reversed,  in 
which  case  it  is  in  favor  of  the  creditor.     But  some  few  states  have 
denied  him  this  extension,  and  declare  that  the  law  of  the  state  where 
a  contract  is  made  (lex  contractu)  and  not  where  it  is  sought  to  be 
enforced  (lexfori)  shall  govern.     In  other  words,  if  the  debt  is  barred 
where  it  was  made,  it  is  also  barred  where  it  is  sought  to  be  enforced. 

TENDER. 

111.  Meaning. — To  tender  means  to  offer,  and  it  is  in  this  sense 
that  the  term  is  used  here.     It  is  an  offer  made  by  a  debtor  to  deliver 
something  to  a  creditor  that  he  is  obligated  to  deliver.    Not  every  offer 
however,  will  operate  as  a  legal  defense.     In  order  to  be  a  legal  ten- 
der^ that  is,  one  that  the  law  will  recognize  as  such,  there  are  certain 
conditions  as  to  what,  where,  when  and  how,  that  must  be  observed. 

112.  Money. — When  the  obligation  is  to  pay  a  sum  of  money,  either 
on  a  contract  or  as  damages  for  some  wrongful  act,  the  tender  must 
be  made  of  certain  kinds  of  money.     The  constitution  of  the  United 
States  gives  to  congress  alone  the  right  to  say  what  money  can  be 
used  as  legal  tender.     In  pursuance  of  this  it  has  provided  that  the 
following  moneys  may  be  so  used: 

I.  Gold  coin  and  silver  dollars  in  any  amount. 

II.  Silver  coins  smaller  than  one  dollar  in  amounts  not  exceeding 
ten  dollars. 

III.  Coppers  and  nickel  coins  up  to  twenty-five  cents. 


TENDER.  45 

IY.  Greenbacks  for  any  amount  and  for  any  debt  except  duties 
and  interest  on  the  public  debt. 

V.     Treasury  notes  in  any  amount. 

One  of  the  most  common  forms  of  currency,  national  bank  notes, 
is  not  included  in  this  list,  for  they  have  never  been  recognized  by 
congress  as  legal  tender.  If,  however,  they  are  tendered,  and  no 
objection  is  offered  to  them  on  this  account,  and  the  tender  is  other- 
wise well  made,  it  will  be  legal.  Gold  and  silver  certificates  are  not 
legal  tender  if  objected  to. 

113.  Chattels. — The  obligation  may  not  require  the  payment  of 
money,  but  the  delivery  of  a  chattel,  in  which  event  it  may  become 
necessary  to  make  a  tender  of  the  chattel  as  a  condition  precedent  to 
bringing  an  action  for  its  price.     Or  the  debtor  may  wish  to  tender 
the  property  mentioned  in  his  chattel  note  in  ordei  to  free  himself 
from  its  care.     The  whole  quantity  must  be  tendered  and  not  a  part. 
The  offer  must  be  unconditional,  and  made  in  such  a  manner  as  to 
leave  nothing  for  the  creditor  to  do  but  to  accept  the  property  and 
thus  to  vest  the  title  in  himself. 

114.  Manner  of  Making  Tender. — When  money  is  to  be  tendered, 
not  only  certain  kinds  of    money  should  be   used,   but   the   exact 
amount,    or  at  least  if    more  is   tendered  no   change    should  be 
demanded,  for  the  offer  would  then  be  conditional.     With  this  condi- 
tion the  creditor  might  not  be  able  to  comply.     If  the  contract  speci- 
fies the  place  of  payment  tender  may  be  made  there,  but  if  no  place  is 
mentioned  the  debtor  should  seek  the  creditor  and  make  tender  to 
him  or  his  duly  authorized  agent.     The  only  condition  that  can  be 
exacted  by  the  debtor  is  when  the  creditor  holds  a  note  for  the 
amount  he  can  insist  on  its  return.  .  Unless  the  creditor  waives  it, 
the  actual  money  must  be  produced  and  offered,  and  it  is  not  suffi- 
cient to  signify  a  willingness  and  readiness  to  pay. 

115.  Effect  of  Tender. — When  the  tender  is  one  of  money,  and  it  is 
legally  made,  it  does  not  discharge  the  debtor,  but  it  relieves  him 
from  the  payment  of  further  interest,  and  from  the  costs  of  any  sub- 
sequent action  that  may  be  brought  against  him  on  the  claim.     In 
order  to  keep  his  tender  good,  and  to  save  himself  the  benefits  of  it 
as  a  defense,  the  debtor  must  be  in  readiness  at  all  times  to  produce 
and  pay  the  amount  on  demand. 

In  case  the  debtor  is  sued,  he  pleads  a  legal  tender,  and  brings  the 
money  into  court.  The  burden  lies  on  him  to  show  that  he  made  a 


46  CONTRACTS. 

legal  tender  and  has  kept  it  good.  The  plaintiff  may  secure  a  judg- 
ment against  the  defendant  but  if  the  tender  was  well  made  the  judg- 
ment will  not  include  the  costs  of  the  action  as  would  be  the  case  if 
no  tender  had  been  made. 

The  effect  of  a  legal  tender  of  chattels  is  to  deliver  them,  although 
the  possession  may  still  remain  with  the  debtor,  who  holds  them  as  a 
bailee.  A  debt  then,  payable  in  chattels  is  fully  paid  and  discharged 
by  a  legal  tender  of  those  chattels. 

A  and  B  differ  as  to  the  amount  A  owes  B,  and  A  tenders  the  amount  he 
admits  as  due,  and  B  refuses  it.  B  then  brings  an  action  against  A.  If  he 
does  not  get  a  judgment  for  more  than  A  tendered  him  he  (B)  must  pay  the 
costs. 


CHAPTER  XII. 

PAYMENT. 

116.  What  is  Payment.  —  If  the  agreement  is  to  pay  a  debt  in 
money,  it  can  be  made  in  any  of  the  moneys  which  are  considered 
legal  tender,  and  indeed  if  accepted  as  payment  with  a  full  knowl- 
edge of  what  it  is,  any  money  will  be  considered  by  the  law  as  pay- 
ment.    If  the  creditor  insists  he  need  not  accept  any  money  except 
legal  tender. 

117.  Payment  by  Mail. — It  should  be  borne  in  mind  that  if  the 
contract  is  silent  as  to  where  the  payment  is  to  be  made,  it  is  the 
duty  of  the  debtor  to  seek  the  creditor  and  make  his  payment  to  him. 
The  creditor  is  not  in  such  cases  obliged  to  make  a  demand  before 
bringing  an  action.     If  the  creditor  requests  the  debtor  to  send  the 
money  to  him  by  any  certain  method,  as  by  mail  or  registered  letter, 
and  the  debtor  follows  his  instructions  strictly,  then  it  is  at  the 
creditor's  risk.     It  is  payment  though  lost.     If,  on  the  other  hand, 
the  debtor,  to  save  himself  the  trouble  of  seeking  the  creditor,  and 
without  instructions  sends  the  money  by  mail  or  other  means,  he  is 
responsible  for  its  receipt,  and  must  suffer  any  loss. 

118.  Payment  by  Note. — The  taking  of  the  debtor's  own  note  for 
an  account  is  not  in  general,   payment  of  that  account,  for  the 
creditor  may  return  the  note  and  sue  upon  the  account.     It  may, 


PAYMENT.  47 

however,  have  the  effect  of  postponing  the  date  of  payment  until  the 
note  would  fall  due.  If,  however,  there  is  indicated  a  clear  inten- 
tion to  accept  the  note  as  payment,  it  must  be  so  considered,  but  this 
intention  must  be  unmistakable. 

119.  In  the  Sale  of  a  Chattel  a  third  person's  note  or  acceptance 
will  be  regarded  as  payment.     It  is  in  the  nature  of  giving  one  chat- 
tel for  another.     If  it  be  for  a  pre-existing  debt,  the  weight  of 
authorities  is  that  it  will  not  be  regarded  as  payment. 

A  purchases  of  B  a  bill  of  goods  and  gives  in  payment,  without  indorse- 
ment, C's  note,  made  payable  to  bearer.  Before  maturity,  C  becomes 
insolvent.  What  are  B's  rights? 

If  this  note  had  been  given  for  a  pre-existing  debt,  what  rights  would  B 
have? 

It  should  be  observed  that  taking  a  note  of  a  third  person  as  col- 
lateral security  does  not  operate  as  payment. 

120.  Payment  by  Check.  —  The  acceptance  of  a  check,  whether 
that  of  debtor  or  of  third  person,  is  payment,  unless  it  be  dishonored 
when  properly  presented. 

121.  Part  Payment. — As  a  general  rule  when  the  exact  amount  of 
the  indebtedness  is  known  and  admitted,  a  part  payment  will  not 
operate  as  a  discharge  of  the  whole,  even  though  the  creditor  agrees 
to  accept  the  part  in  satisfaction  of  the  whole.     There  must  be  some 
legal  benefit  or  legal  possibility  of  a  benefit  to  the  creditor  sufficient 
to  amount  to  a  consideration  for  his  promise  to  release  the  residue. 
Neither  does  the  giving  of  a  receipt  change  this,  for  it  is  a  well- 
known  principle  of  law  that  a  receipt  may  be  disputed  or  explained 
by  parol  evidence. 

If  a  piece  of  personal  property  be  accepted  in  addition  to  the  part 
payment  of  money,  it  will  operate  as  a  discharge  of  the  whole,  though 
the  value  of  the  chattel  may  appear  to  be  an  inadequate  consideration. 
So  if  the  debt  is  not  yet  due,  or  the  exact  amount  of  it  is  in  dispute, 
acceptance  of  a  less  sum  than  that  claimed  by  the  creditor  will  dis- 
charge the  obligation. 

A  mutual  agreement  by  the  creditors  of  an  insolvent  to  accept  a 
less  sum  than  their  respective  claims  is  binding.  The  promise  of  one 
is  a  consideration  for  that  of  the  others.  (See  sec.  69.) 

122.  To  Whom  Payment  May  Be   Made.  —  Payment  if  made  to 
the  creditor  is  of  course  valid.     It  can  be  made  to  one  of  several 
partners  when  the  indebtedness  is  to  the  partnership.     It  may  also 


48  CONTRACTS. 

be  made  to  the  creditor's  authorized  agent,  and  one  who  is  found  in 
possession  of  the  creditor's  books  of  account,  and  apparently  in  pos- 
session of  his  affairs,  may  give  a  valid  release. 

123.  Application  of  Payment. — When  there  are  several  debts  due 
the  creditor  from  the  debtor,  and  a  payment  is  made,  the  question 
arises,  to  which  debt  must  the  payment  be  applied.      It  becomes 
exceedingly  important  when  some  of  the  bills  are  barred  by  the 
statute  of  limitations  and  others  not.     The  rule  is  that  at  the  time  of 
payment  the  debtor  may  direct  to  which  account  he  wishes  it  applied. 
The  creditor  is  not  obliged  to  receive  less  than  the  whole  of  any 
account,  but  if  he  does  receive  it  he  must  apply  it  as  the  debtor 
directs.     The 'debtor  failing  to  direct  the  application  of  his  payment, 
the  creditor  may  apply  it  as  he  chooses.     He  may  even  apply  it  to  a 
debt  already  barred,  but  it  will  not  revive  the  balance.     He  cannot 
apply  it,  however,  to  an  account  growing  out  of  an  illegal  transac- 
tion, and  then  claim  on  the  legal  obligations. 

PERFORMANCE. 

124.  Meaning. — The  defendant  may  plead  that  he  has  performed 
his  contract  entirely,  or  as  far  as  required  before  the  plaintiff  should 
perform  his  part.     In  order  to  be  a  good  defense  the  performance 
must  conform  essentially  to  the  material  conditions  of  the  contract  as 
regards  time,  place  and  manner.     Formerly  the  law  required  a  strict 
compliance  in  all  respects,  but  as  this  rule  often  worked  a  great  hard- 
ship, it  has  been  much  relaxed. 

125.  Time  of  Performance. — Whether  the  time  of  performance  or 
non-performance  of  a  contract  is  an  essential  element  will  depend 
upon  the  circumstances  of  the  case.     It  may  be  so  important  that 
the  injured  party  may  legally  refuse  to  accept  any  performance  at  a 
later  day ;  in  other  words,  he  may  rescind  the  contract ;  and  in  other 
cases  he  may  be  justified  in  accepting  performance  and  in  claiming  a 
reduction  of  his  part  for  lack  of  promptness  in  the  other  party.     If 
time  can  be  shown  to  be  an  unimportant  feature  in  any  case,  a  per- 
formance that  is  substantially  on  time  will  be  a  valid  defense. 

A  lady  ordered  a  dress  from  a  store  and  at  the  time  of  ordering  stated  that 
she  wished  it  for  a  certain  gathering  to  be  held  on  the  following  Saturday 
evening.  The  order  was  accepted  on  these  terms,  but  the  garment  was  not 
delivered  till  two  days  after  the  date  specified.  The  lady  then  refused  to 
accept  the  dress. 


FORFEITURE — SET-OFF.  49 

126.  Time,   How    Counted.  —  When    the    time    is    expressed    in 
months,  calendar  months  are  meant.     It  is  also  a  general  rule  that 
the  day  the  contract  is  made  is  not  to  be  counted,  but  the  day  of  per- 
formance is  a  part  of  the  time.     When  the  last  day  of  performance 
falls  on  Sunday  or  a  holiday,  the  party  has  the  succeeding  day  in 
which  to  perform. 

127.  Part  Performance. — When  the  contract  is  for  a  certain  term 
of  service,  or  for  a  certain  quantity  of  personal  property,  and  there  is 
an  inability  to  more  than  partially  fulfill  the  contract,  it  does  not 
render  it  all  void.     The  servant  who  has  thus  rendered  only  a  portion 
of  his  services  may  recover  quantum  meruit,  that  is  what  he  merits, 
less  any  damages  his  failure  may  have  caused  the  other  party.     In 
the  case  of  the  delivery  of  only  a  portion  of  the  personal  property, 
recovery  may  be  had  quantum  valebat,  that  is  for  its  value,  less  any 
damage  caused  the  other  party. 

In  contracts  for  personal  service  there  is  always  an  implied  pro- 
vision that  health  permits. 

FORFEITURE. 

128.  Explanation. — Often  in  making  contracts  the  parties  stipu- 
late that  in  case  either  party  fails  to  perform  his  part  of  the  contract, 
he  shall  forfeit  to  the  other  a  certain  stipulated  sum.     This  provision 
will  not  usually  be  upheld  by  the  courts,  for  it  is  a  maxim  of  the  law 
that  "The  law  abhors  a  forfeiture."     It  is  deemed  sufficient  that  the 
injured  party  be  allowed  his  damages  actually  suffered,  and  not  that 
the  other  be  punished  for  his  failure. 

This  rule  does  not  prohibit  the  parties  from  agreeing  beforehand 
upon  the  amount  of  damages  each  would  suffer  upon  the  failure  of 
the  other,  called  liquidated  damages.  But  it  must  appear  to  be  an 
honest  agreement  made  with  this  end  in  view,  and  not  in  any  sense  a 
forfeiture. 

SET-OFF. 

129.  Set  -  Off  as    a   Defense.  —  When  suit  is   brought  against  a 
debtor  he  may  plead  that  he  has  not  paid  the  debt  because  he  has  a 
claim  against  the  creditor  which  is  unpaid.     It  is  often  called  a 
counter  claim.     Litigation  is  often  much  simplified  in  this  manner, 
for  the  validity  of  the  claims  of  each  can  be  tested  in  the  same  suit. 
He  who  has  the  largest  valid  claim  against  the  other  will  get  a  judg- 


50  CONTRACTS. 

ment  against  the  other  for  the  difference.  The  debt  sought  to  be 
recovered,  and  that  to  be  set  off,  must  be  mutual,  and  due  in  the 
same  right.  A  joint  debt  cannot  be  set  off  against  a  separate  one, 
nor  vice  versa.  The  defense  of  set-off  is  allowed  for  the  benefit  of 
the  defendant,  hence  he  can  avail  himself  of  it,  or  bring  a  separate 
action  for  his  claim,  as  he  may  choose. 

RECOUPMENT. 

130.  Recoupment  as  a  Defense. — Recoupment  is  used  as  a  defense 
in  the  same  manner  as  set-off.  It  differs  from  set-off  in  that  the  two 
claims  must  arise  out  of  the  same  transaction,  while  in  set-off  such 
need  not  be  the  case.  Then  in  set-off  it  is  debt  against  debt,  but 
recoupment  is  a  reduction  of  damages  in  an  action  for  breach  of  war- 
ranty or  defect  in  performance.  It  is  withholding  a  discount  claimed 
to  be  due  for  a  defect. 

A  sold  B  a  horse  and  warranted  it  to  be  sound  in  every  particular.  The 
consideration  was  to  be  $100,  due  in  three  months.  The  horse  proved  to  be 
unsound,  and  B  refused  to  pay  the  full  consideration,  and  A  sued  him  for  it. 
B's  defense  was  a  breach  of  warranty.  The  jury  gave  A  a  verdict  for  $75. 
B's  defense  was  recoupment.  What  would  have  been  the  effect  if  B  had 
made  a  legal  tender  of  $75  to  A  before  the  suit  was  brought  ? 


CHAPTER  XIII. 
MISCELLANEOUS  ITEMS. 

131.  Important  Rule  of  Evidence. — It  has  been  observed  in  sec- 
tion 96  that  a  trial  is  conducted  according  to  a  well -understood  code 
of  rules.  Even  the  evidence  that  may  be  introduced  is  subjected  to 
the  careful  scrutiny  of  the  court,  and  none  will  be  admitted  either 
for  or  against  except  it  be  clearly  legal.  One  of  the  most  important 
rules  of  evidence  is  that  "No  parol  evidence  can  be  admitted  to 
explain,  vary  or  contradict  that  which  is  written."  As  a  result  of 
this  rule,  when  two  parties  have  made  a  contract  and  committed  it 
to  writing,  that  writing,  when  obtainable,  is  the  only  permissible 
proof  of  the  contract.  As  a  mere  rule  of  evidence  this  knowledge  is 
of  little  benefit  to  any  but  practicing  attorneys,  but  when  we  come  to 


MISCELLANEOUS   ITEMS.  51 

regard  its  effect  it  is  of  the  greatest  importance  to  all  who  make 
written  contracts  which  they  expect  to  enforce.  In  the  light  of  this 
rule  the  student  should  be  impressed  that  a  written  contract  should 
state  the  agreement  exactly,  and  without  ambiguity,  for  by  the 
instrument  itself  is  the  case  won  or  lost.  Evidence  cannot  be  intro- 
duced, that  while  the  contract  says  one  thing  something  else  was 
intended.  Evidence  may,  however,  be  introduced  to  show  that  since 
the  making  of  the  written  contract  another  agreement  was  made 
which  practically  annulled  the  former.  In  this  there  is  nothing 
inconsistent  with  the  idea  that  every  man  is  presumed  to  have  meant 
just  what  he  said. 

If  there  be  in  the  contract  a  latent  ambiguity,  that  is,  one  not 
apparent  on  its  face,  such  for  intance  as  a  person's  name,  and  there 
happens  to  be  two  of  that  name,  the  one  actually  meant  may  be 
ascertained  by  parol  evidence. 

A,  a  prominent  person  in  a  village,  is  solicited  by  B,  a  book  agent,  to  sub- 
scribe for  his  book.  The  price  of  the  book  is  $15.00,  but  B,  wishing  to  have 
A's  name  head  his  list,  orally  agrees  to  let  him  have  the  book  for  $5.00,  but 
for  obvious  reasons  takes  his  name  on  a  regular  blank  in  which  A  agrees  to 
pay  $15.00,  B  claiming  that  he  will  make  it  right  when  he  comes  to  deliver 
the  book.  The  delivery  is  made  by  another  who,  standing  on  the  written 
contract,  insists  on  A  paying  $15.00.  A  is  remediless,  for  he  cannot  intro- 
duce the  oral  contract. 

132.  Exception. — There  is  one  important  exception  to  this  rule, 
an  exception  to  which  we  have  previously  alluded.  It  is  that  of  a 
receipt.  Parol  evidence  is  admitted  to  vary  or  contradict  a  receipt. 
Sometimes  an  instrument  is  both  a  contract  and  a  receipt,  but  in  this 
case  the  law  carefully  distinguishes  between  the  two  functions,  and 
will  admit  parol  evidence  to  dispute  the  receipt  part  but  not  the  con- 
tract. 

Another  Rule  of  Evidence. — It  is  the  law  in  most  States  that  in  a 
suit  in  which  one  of  the  parties  sues  or  defends  as  the  executor  or 
administrator  of  a  party  deceased  the  other  party  thereto  cannot 
testify.  Business  should  therefore  be  conducted  with  this  rule  in 
view.  The  evidence  should  always  be  arranged  so  as  to  make  proof 
of  the  indebtedness  easy.  For  this  reason  a  note  is  to  be  preferred 
to  an  open  account,  for  the  signature  may  be  proved  by  third  persons. 

A  owed  B  on  a  note.  A  payment  of  twenty  dollars  was  endorsed  on  the 
note,  but  the  endorsement  was  in  B's  handwriting.  A  died  and  B  sued  A's 
executor  on  the  note  which  was  outlawed  if  the  endorsement  was  not 
allowed  to  extend  the  time.  Had  the  endorsement  been  in  A's  handwriting 
the  payment  could  have  been  proven.  As  it  was  it  could  not  and  B  lost.  46 
Atl.  Rep.  51.  58  N.  H.  201. 


52  CONTRACTS. 

133.  Assignment. — The  old  rule  of  the  common  law  was  that  a 
chose  in  action  could  not  be  assigned.     It  was  supposed  that  to  per- 
mit it  would  increase  litigation,  but  this  argument  has  long  since 
been  exploded,  and  now  a  person  may  sell  and  transfer  almost  any 
chose  in  action,  subject  to  the  debtor's  right  of  set-off.     Contracts 
may  be  assigned  except  when  they  are  of  a  personal  nature,  such  as 
for  the  services  of  a  particular  individual.      When  a  contract  is 
assigned  and  suit  is  brought  by  the  assignee,  it  must  be  brought  in 
the  name  of  the  assignor  for  the  use  of  the  assignee.     This  gives  the 
defendant  the  opportunity  to  plead  a  set-off  if  he  has  one.     The 
debtor  should  be  immediately  notified  of  the  assignment  of  a  chose  in 
action,  else  he  may  pay  the  assignor.     If  he  assents  to  the  assign- 
ment, suit  may  in  that  case  be  brought  in  the  name  of  the  assignee. 

On  the  grounds  of  public  policy,  a  soldier  is  not  permitted  to 
assign  his  future  pay  or  his  pension,  neither  can  a  personal  action, 
such  as  a  right  of  action  against  a  railway  company  for  personal 
injuries  be  assigned,  for  this  dies  with  the  person.  The  assignment 
need  not  be  formal,  but  a  mere  delivery  of  the  evidence  of  indebted- 
ness has  been  held  as  sufficient. 

The  assignee,  except  in  the  case  of  negotiable  paper,  takes  no  better 
title  than  the  assignor  had. 

The  usual  form  of  assignment  is  about  as  follows :  For  value  received  I 
hereby  sell,  assign  and  set  over  to  A  B  all  my  right,  title  and  interest  in  and 
to — (here  describe  the  thing  assigned).  Signed  this  —  day  of  —  A.  D.  190—. 

(Signed). 

134.  Non-Negotiable    Paper.  —  A   non-negotiable  paper   may  be 
transferred  by  indorsement,  the  same  as  any  other  contract,  but  the 
taker  is  not  protected  to  the  same  extent  as  the  indorsee  of  a  nego- 
tiable paper. 

135.  Alterations. — A  party  making  any  material  change  or  altera- 
tion in  a  written  contract,  by  erasing  or  adding  to  it,  renders  the 
contract  absolutely  void,     lie  cannot  even  recover  that  which  was  his 
due  on  the  original. 

By  the  Negotiable  Instrument  law  an  innocent  holder  may  enforce 
a  negotiable  paper  according  to  its  original  tenor. 

136.  Bankruptcy    and    Insolvency    Laws.  —  A    bankruptcy    law 
differs  from  an  insolvency  law  in  that  the  bankrupt  is  wholly  dis- 
charged from  all  further  liability,  while  the  insolvent  is  not.     By  the 
constitution  of  the  United  States,  congress  is  given  the  power  to  pass 
uniform  laws  of  bankruptcy,,  and  in  accordance   therewith   three 


PEACTICAL    EEVIEW.  53 

different  laws  have  been  passed,  and  each  almost  immediately 
repealed.  Many  States  have,  therefore,  felt  compelled  to  take  the 
matter  in  their  own  hands,  and  have  passed  bankruptcy  laws,  while 
nearly  all  have  passed  insolvency  laws. 

Under  the  decisions  the  State  may  only  pass  a  bankruptcy  law  when 
there  is  no  national  bankrupt  act  in  force.  (See  sec.  16.)  There  is 
also  a  difficulty  in  making  the  provisions  of  a  State  bankruptcy  law 
applicable  to  creditors  outside  of  the  State.  (See  sec.  8.)  The 
effect  of  this  is  that  a  State  legislates  against  the  interests  of  its  own 
citizens,  making  them  less  favored  creditors  than  the  citizens  of 
other  States. 

The  greatest  difficulty  the  States  have  had  in  passing  these  laws 
has  been  that  provision  of  the  national  constitution  which  forbids  the 
States  to  pass  any  law  impairing  the  obligation  of  contracts. 

For  the  provisions  of  an  insolvency  law  the  student  should  consult 
the  statutes  of  his  own  State. 

137.  Accord  and  Satisfaction. — When  there  has  been  a  breach  of 
a  contract  on  the  part  of  one  party  the  parties  may  agree  on  what 
the  one  at  fault  is  required  to  do  by  way  of  settlement.  If  this 
agreement  be  fulfilled  it  is  a  complete  discharge  of  the  contract  and 
no  further  action  can  be  maintained  on  it.  If,  however,  it  be  not 
carried  out  the  aggrieved  party  may  maintain  an  action  for  damages 
on  the  original  contract,  and  if  he  can  prove  a  greater  damage  than 
was  agreed  upon  he  can  recover  it. 

PRACTICAL  REVIEW. 

I.  A  writes  to  B  that  he  will  take  100  barrels  of  apples  at  $4.00  per  barrel. 
1.  Must  B  furnish  the  apples?    2.  If  B  desires  to  furnish  the  apples,  how 
soon  must  he  accept? 

II.  A  offers  by  letter  to  sell  his  house  to  B  for  $1,000.     B  replied  by 
letter,  "I  accept,  subject  to  your  first  putting  the  house  in  thorough  repair." 
Is  there  or  not  a  contract?    And  why? 

III.  A  and  B  are  intimate  friends,  living  in  a  suburb  of  Chicago.    A  owes 
a  bill  at  Field's.     B  being  in  Field's  store,  is  asked  if  A  is  good  for  the  bill. 
B,  wishing  to  save  A's  credit,  paid  the  bill  for  him,  and  on  so  informing  A 
was  thanked  for  his  kindness.     Can  he  collect  it  from  A?    117  N.  Y. ,  168. 

IV.  A  agreed  to  sell  a  horse  to  B,  each  supposing  the  price  was  agreed 
on.     Before  delivery  it  transpired  that  A  thought  the  price  was  to  be  §175, 
while  B  thought  it  was  to  be  §125.     Was  there  a  sale?     Why?    Suppose  this 
misunderstanding  was  not  disclosed  until  after  delivery,  what  would  be  the 
rights  of  the  parties? 

V.  In  the  above  case,  no  delivery  having  been  made,  if  B  should  write 
that  he  would  split  the  difference,  and  should  add  "If  I  do  not  hear  from 
you  by  return  mail,  I  shall  consider  the  horse  mine."     A  gets  the  letter  but 
does  not  reply.     Is  there  a  contract?    Give  reasons. 


54  C01STBA.CT6. 

VI.  A  lady  contracted  to  sing  at  a  concert  on  a  certain  night.    The  night 
arriving  she  was  too  ill  to  appear.    Is  she  liable  for  breach  of  contract?    Why? 

VII.  A  agrees  to  buy  certain  shares  of  stock  from  B,  supposing  them  to 
be  worth  a  premium.     Before  paying  for  them  he  learns  they  have  fallen  on 
the  market.    What  are  the  rights  of  the  parties? 

VIII.  A  writes  to  B,  saying  that  he  will  take  100  barrels  of  pork  at  $12  a 
barrel ;  B  replies  by  letter  the  next  day  that  he  will  ship  the  pork  at  that 
price ;  on  this  same  day,  after  this  letter  is  mailed,  the  price  of  pork  suddenly 
rises  over  $12,  and  B  telegraphs  at  once  to  A  that  he  cannot  let  him  have  the 
pork  at  $12 ;  the  telegram  reaches  A  before  the  letter.     Is  B  bound  to  deliver 
the  pork  at  $12  a  barrel? 

IX.  A  contracted  to  deliver  a  cargo  of  lumber  on  board  a  vessel  within 
ten  days.     He  began  the  delivery,  but  a  sudden  frost  made  it  impossible  to 
bring  any  more  lumber  from  the  mills  by  boats  navigating  the  canal.     For 
this  reason  the  work  was  delayed  twenty  days.     Is  A  liable,  and  why? 

X.  A  agrees  to  sell  and  deliver  to  B  goods  of  a  certain  kind.     On  the  day 
named  for  the  delivery,  goods  of  that  kind  were  not  to  be  had.     Can  or  not 
B  recover  from  A?    And  why? 

XI.  A,  in  ignorance  of  the  fact  that  B  is  an  adjudged  lunatic  under  guar- 
dianship, enters  into  a  contract  with  him.     Can  B's  guardian  enforce  the 
contract?    Would  your  answer  be  different  if  B  were  a  minor  instead  of  a 
lunatic?    Why? 

XII.  A,  being  detected  in  crime,  agrees  to  and  does  sell  and  deliver  to  B, 
the  prosecuting  witness,  a  valuable  watch,  the  consideration  being  that  B  is 
not  to  prosecute.     Can  A  recover  his  watch?    Why?    If  the  watch  had  not 
been  delivered,  could  B  compel  A  to  complete  the  sale?    Why? 

XIII.  A  telegraphs  to  B,  a  florist,  to  send  him  ten  bouquets ;  the  telegram 
delivered  to  B  reads  one  hundred  bouquets ;  B  fills  the  order.    For  how  many 
bouquets  must  A  pay?    Why? 

XIV.  A  telegraphs  to  B  to  forward  a  carload  of  lumber  to  him  at  once ; 
later  he  telegraphs  again,  withdrawing  his  order.     The  last  message  mis- 
carries, and  when  it  finally  reaches  B  the  lumber  had  been  started.     Is  A 
liable? 

XV.  A  agrees  orally  to  purchase  a  house  and  lot  of  B  at  a  certain  stipu- 
lated price.    They  are  to  meet  on  a  future  day  and  complete  the  sale.    Before 
the  day  mentioned  B  writes  A  that  he  will  not  make  the  sale  at  the  price 
agreed  upon.     What  remedy  has  A? 

XVI.  A,  a  minor,  agrees  to  sell  B  a  horse  for  $250.     1.  Suppose  before 
delivery  A  refuses  to  be  bound.     2.  Suppose  delivery  has  been  made  and 
money  paid  when  A  insists  on  a  recission.     3.  Suppose  that  B  sells  the  horse 
to  C  and  then  A  rescinds.     What  are  the  rights  of  the  parties  in  each  case? 

XVII.  A,  a  butcher,  buys  of  B  five  head  of  cattle,  to  be  delivered  on  a 
certain  day,  but  B  fails  to  deliver  the  cattle.     A  claims  damages  for  the 
breach  and  agrees  with  B  to  accept  $25  in  full  satisfaction,  but  B  does  not 
pay  it.     Can  A  recover  it?    Can  he  recover  any  more? 

XVIII.  A  in  the  presence  of  several  persons  orally  hires  B  for  one  year 
from  the  following  September  first,  at  a  yearly  salary  of  $1800.     B  enters 
upon  his  employment  and  continues  for  seven  months,  when  he  is  discharged 
through  no  fault  of  his  own.     Can  he  recover  from  A,  and  if  so  how  much? 

XIX.  A  owes  B  a  sum  of   money.      C. ,  for  a  valuable   consideration, 
agrees  with  A  to  pay  his  debt  to  B.     Should  this  contract  be  in  writing? 
And  why? 

XX.  F  sells  property  to  G,  intending  to  put  the  proceeds  beyond  reach 
of  creditors.     Can  G,  knowing  all  the  facts,  hold  the  property  as  against  the 
creditors  of  F?     Can  he  hold  it  as  against  F?    Can  he  hold  it  as  against  F's 
creditors,  if  he   had  no  knowledge  of  F's  scheme?    Give  reasons  for  your 
answer. 


BEVIEW   QUESTIONS.  55 

XXI.  A  agreed  to  build  a  house  for  B  for  a  certain  sum  and  according  to 
certain  specifications.     A  did  not    follow  the  specifications  strictly    and 
before  he  completed  his  work  he  assigned  his  contract  to  C.     If  he  had  not 
assigned  the  contract  and  had  sued  B  for  the  amount  of  the  contract  what 
would  have  been  B's  defense?    Having  assigned  the  contract  will  B  be  obliged 
to  pay  to  C  the  full  amount  of  the  cost  price?    Can  B  plead  in  defense  the 
same  against  C  that  he  could  against  A? 

XXII.  A  dispute  arose  between  A  and  B  as  to  the  amount  due  from  B  to 
A.    A  claimed  $90  while  B  conceded  only  $60.     Under  these  circumstances 
what  is  the  best  thing  for  B  to  do?    If  A  sues  B  for  $100  what  can  B  do,  if 
anything,  to  relieve  himself  from  costs  and  what  will  be  his  defense?    If 
upon  trial  it  is  found  that  $60  only  is  due,  who  must  pay  the  costs  and  why? 

REVIEW  QUESTIONS. 

1.  What  is  law?  2.  Name  the  general  kinds  of  law.  3.  Define  moral  law. 
4.  Define  natural  law.  5.  What  is  municipal  law?  6.  Into  what  classes  is 
municipal  law  divided?  7.  What  is  the  extent  of  municipal  law?  8.  What 
is  the  common  law?  9.  How  many  and  what  kinds  of  statute  law  do  we 
have?  10.  Give  the  order  of  precedence  of  our  different  classes  of  laws.  11. 
What  is  property?  12.  What  is  real  property?  13.  What  is  personal  prop- 
erty? 14.  What  is  a  thing  in  action,  and  how  does  it  differ  from  a  thing  in 
possession?  15.  In  what  way  is  property  held  with  respect  to  the  number  of 
holders?  16.  What  is  a  joint  tenancy?  17.  What  is  a  tenancy  in  common? 
18.  Define  a  contract.  19.  Give  the  essentials  of  every  contract.  20.  In 
what  four  ways  may  contracts  be  divided?  21.  What  is  a  void  contract? 
22.  What  is  a  voidable  contract?  23.  What  is  a  specialty?  24.  What  is  a 
parol  contract?  26.  How  did  specialties  originate  ?  26.  What  is  an  executory 
contract  ?  27.  What  is  an  executed  contract?  28.  State  the  general  rule 
as  to  who  may  contract.  29.  For  what  two  reasons  are  there  exceptions 
to  this  rule?  30.  How  does  a  lunatic  differ  from  an  idiot?  31.  Are  a  luna- 
tic's contracts  void  or  voidable?  32.  Are  an  idiot's  contracts  void  or  void- 
able? 33.  To  what  extent  is  intoxication  a  disability?  34.  What  contracts 
of  an  infant  are  valid?  35.  What  contracts  of  an  infant  are  voidable?  36. 
Are  any  contracts  of  an  infant  void?  37.  What  was  the  common  law  in 
reference  to  married  women  as  parties  to  a  contract?  38.  What  changes 
have  the  statutes  usually  made  in  this  regard?  39.  Of  what  does  assent 
consist?  40.  How  long  does  one  have  in  which  to  accept  a  proposition?  41. 
When  does  the  acceptance  take  place  when  it  is  made  by  letter?  42.  Can  one 
withdraw  his  proposition  at  any  time?  43.  What  is  meant  by  "giving  an 
option"?  44.  How  may  acceptance  be  implied?  45.  What  is  duress?  46.  When 
will  duress  be  a  good  defense?  47.  When  will  a  mistake  relieve  a  party  from 
his  contract?  48.  What  is  consideration?  49.  What  considerations  are  legally 
sufficient?  50.  What  is  a  good  consideration?  51.  When  will  a  good  con- 
sideration support  a  contract?  52.  Name  the  valuable  considerations.  53. 
Name  six  considerations  that  are  insufficient.  54.  What  is  an  impossible 
consideration?  55.  Will  a  moral  consideration  ever  support  a  contract?  56. 
State  the  rule  in  this  regard  57.  Define  subject  matter.  58.  State  what 
cannot  be  legal  subject  matter.  59.  What  is  the  effect  of  an  agreement  that  is 
illegal?  60.  What  is  meant  by  a  legal  remedy?  61.  Name  the  steps  in  an 
ordinary  trial  at  law.  62.  What  is  a  judgment?  63.  What  is  an  execution? 
64.  What  is  meant  by  "exemption  laws"?  65.  What  is  garnishment?  66. 
What  is  replevin?  67.  What  is  attachment?  68.  Can  a  debtor  be  imprisoned 
for  failure  to  pay  his  debt?  69.  What  is  a  legal  defense?  70.  What  is  the 
statute  of  frauds?  71.  Give  the  substance  of  it.  72.  What  is  a  statute  of 
limitations?  73.  When  does  the  statute  begin  to  run?  74.  What  will  usually 
excuse  failure  to  bring  action  within  the  appointed  time?  75.  Which  of 
these  apply  to  the  debtor?  76.  What  is  tender?  77.  How  must  a  tender  in 
money  be  made?  78.  How  must  a  tender  of  chattels  be  made?  79.  What  is 
the  effect  of  a  legal  tender  of  money?  80.  What  is  the  effect  of  a  legal  ten- 
der of  chattels?  81.  When  is  payment  by  mail  at  debtor's  risk,  and  when  at 


56  CONTRACTS. 

creditor's?  82.  When  is  a  note  payment  and  when  is  it  not?  83.  What  can 
you  say  of  a  payment  by  check?  84.  Will  a  part  payment  cancel  the  whole 
debt  by  agreement?  85.  Give  the  rule  for  the  application  of  payments.  86. 
How  may  performance  be  used  as  a  defense?  87.  How  far  is  time  an  essen- 
tial element?  88.  When  can  a  party  rescind  for  lack  of  promptness  in  per- 
formance? 89.  When  must  he  accept  performance  and  then  claim  a  rebate 
for  lack  of  promptness?  90.  What  is  meant  by  quantum  meruit  ?  91.  In 
what  connection  is  the  phrase  used?  92.  What  is  meant  by  quantum  valebat  ? 
93.  In  what  connection  is  it  used  ?  94.  What  is  meant  by  forfeiture?  95. 
What  are  liquidated  damages  ?  96.  When  will  the  law  uphold  them?  97. 
What  is  set-off?  98.  How  may  set-off  be  used  as  a  defense?  99.  What  is 
recoupment  ?  100.  How  does  set-off  differ  from  recoupment? 

LEGAL  MAXIMS. 

1.  Ignorance  of  the  law  excuses  no  one. 

2.  No  one  is  bound  to  do  what  is  impossible. 

3.  No  injury  is  done  by  things  long  acquiesced  in. 

4.  An  action  is  not  given  to  one  who  is  not  injured. 

5.  If  the  plaintiff  does  not  prove  his  case  the  defendant  is  absolved. 

6.  No  one  is  responsible  for  inevitable  accidents. 

7.  The  proof  lies  on  him  who  affirms,  not  on  him  who  denies. 

8.  It  is  one  thing  to  possess,  it  is  another  to  be  in  possession. 

9.  A  person  ought  not  to  be  judge  in  his  own  cause. 

10.  One  alleging  his  own  infamy  is  not  to  be  heard. 

11.  The  intention  of  the  parties  is  the  soul  of  the  instrument. 

12.  Good  faith  does  not  allow  us  to  demand  twice  the  payment  for 
the  same  thing. 

13.  Let  the  purchaser  beware. 

14.  That  is  sufficiently  certain  which  csm  be  made  certain. 

15.  An  evidence  of  debt  found  in  possession  of  the  debtor  is  pre- 
sumed to  be  paid. 

16.  A  condition  precedent  must  be  fulfilled  before  the  effect  can 
follow. 

17.  Where  two  parties  are  equally  in  fault  the  party  in  possession 
has  the  better  cause. 

18.  Time  runs  against  the  slothful  and  those  who  neglect  their 
rights. 

19.  The  law  does  not  notice  trifling  matters 
'  20.  A  day  begun  is  held  as  complete. 

'21.  Every  man's  house  is  his  castle. 

22.  A  gift  is  not  presumed. 

23.  It  is  fraud  to  conceal  a  fraud. 

24.  What  I  cannot  do  in  person  I  cannot  do  through  the  agency 
of  another. 


NEGOTIABLE   INSTRUMENTS.  57 


NEGOTIABLE   INSTRUMENTS. 


CHAPTER   XIV. 

138.  Introduction. — As  a  general  rule  a  man  may  sell  and  transfer 
anything   to   which   he   has   a   clear   title.     We  have  seen  that  an 
account  may  be  a  valid  consideration.     This  implies  that  it  may  be 
transferred  or  assigned,  yet  it  is  not  negotiable.     Negotiability  is  not 
then  transferability.     The  difference  may  be  shown  by  the  following 
illustrations:  You  have  an  account  against  A,  and  you  also  hold  B's 
negotiable  note,  either  may  be  transferred,  but  only  the  note  is  nego- 
tiable.    You  transfer  both  the  note  and  the  account,  under  proper 
conditions,  to  C ;  they  each  fall  due  and  are  unpaid.     C  then  brings 
an  action  against  A  on  the  account,  and  against  B  on  the  note.     In 
the  suit  against  A,  if  he  had  any  claim  against  you  which  he  could 
urge,  for  instance  as  a  set-off,  he  could  also  urge  it  in  this  suit  of  C's, 
and  thus  might  entirely,  or  partially,  defeat  C's  claim.     Not  so  in 
the  case  against  B  on  the  negotiable  note.     When  it  passed  into  C's 
hands  it  was    freed  from  any  and  all  defenses  that  might  have  been 
urged  against  it  in  your  hands.     This  is  a  privilege  accorded  to  no 
other  evidence  of  indebtedness  than  negotiable  paper.     As  a  result 
of  this  privilege  a  negotiable  paper  may  be  transferred  and  the  pur- 
chaser take  a  better  title  to  it  than  the  seller  ever  had.     This  is  an 
exception  to  the  general  rule  that  no  better  title  can  be  given  than 
the  seller  himself  has. 

139.  A   Negotiable   Instrument  is    a  written  contract  possessing 
certain  necessary  elements,  and  which  when  transferred  under  certain 
conditions,  passes  to  the  purchaser  free  and  clear  of  any  defenses 
that  might  have  existed  against  it  in  the  hands  of  the  original  holder. 

This  definition  raises  two  questions,  (1)  what  are  the  necessary 
elements,  and  (2)  what  are  the  certain  conditions  of  transfer.  Only 
the  first  will  we  attempt  to  answer  for  the  present. 


58  NEGOTIABLE   INSTRUMENTS. 

140.  The  Necessary  Elements. — While  negotiable  paper  remains 
in  the  hands  of  the  original  holder,  it  is  merely  an  ordinary  written 
contract,  subject  to  all  the  usual  rules  of  interpretation,  and  must 
possess  all  the  four  essential  elements  of  any  contract.     It  is  only 
when  it  is  about  to  be,  or  has  been,  transferred,  that  it  is  necessary 
to  inquire  what  are  the  essentials  that  give  to  this  class  of  contracts 
its  peculiar  privileges. 

1.  Competent  Parties. 

2.  Made  in  Writing. 

3'  Payable  in  Money. 

1 4.  Payable  Absolutely. 

5.  Negotiable  in  Form. 
k  6.  Time  Specified. 

141.  Competent  Parties. — These  maybe  divided  into  (1)  original, 
or  those  who  are  named  in  the  instrument,  and  (2)  subsequent,  or 
those  into  whose  hands  it  may  fall  later. 

The  competency  of  these  several  parties  does  not,  as  a  rule,  differ 
from  the  competency  of  parties  to  an  ordinary  contract.  The  original 
parties  must  in  fact  be  the  exact  parties  mentioned  in  the  paper. 
Hence  when  a  name  is  forged  to  a  negotiable  paper  it  creates  no  lia- 
bility on  the  part  of  the  person  whose  name  is  forged,  not  even  in  the 
hands  of  an  innocent  holder. 

The  original  parties  must  all  be  designated  with  certainty.  This 
is  necessary  that  he  who  is  to  pay  must  know  to  whom  payment 
should  be  made,  and  on  the  other  hand  that  he  who  is  to  receive  pay- 
ment must  know  from  whom  to  demand  it. 

When  a  contract  is  signed  by  an  agent  he  should  sign  the  name  of 
his  principal,  then  under  it  by  "A.  B. "  For  a  contract  signed  "A. 
B.  agent  for  C.  D."  is  A.  B.'s  contract. 

142.  Made    in   Writing. — By  this    is    meant   either  writing  or 
printing,  or  both.     In  fact  a  large  proportion  of  the  negotiable  paper 
of  business  is  made  on  printed  blanks,  only  those  portions  wherein 
one  may  differ  from  another  being  inserted  in  writing.     The  writing 
should,  for  obvious  reasons,  be  in  ink,  but  a  negotiable  instrument 
written  with  a  pencil  is  valid. 

The  instrument  should,  of  course,  be  signed  by  the  maker  or 
drawer,  but  as  this  is  a  unilateral  contract  it  need  not  be  signed  by 


NEGOTIABLE   INSTRUMENTS.  59 

the  other  party.     His  acceptance  of  the  paper  is  a  sufficient  indica- 
tion of  his  assent. 

By  the  Negotiable  Instrument  law  a  paper  does  not  lose  its  negotiable 
character  by  being  under  seal. 

143.  Payable  in  Money. — A  negotiable  instrument  must  be  pay- 
able in  money,  and  not  in  goods  and  chattels.     If  payable  in  specific 
articles  it  becomes  a  special  contract,  and  loses  its  special  character 
as  a  negotiable  instrument.     It  may  in  all  other  respects  be  in  correct 
form,  and  while  it  may  be  transferred  by  delivery,  yet  it  is  not  nego- 
tiable.    The  amount  must  also  be  stated  with  certainty,  or  the  means 
given  by  which  it  can  be  ascertained  easily.     It  is  not  negotiable  if 
it  be  for  a  certain  amount,  "and  all  other  sums  which  may  be  due." 
If  there  be  added  to  the  amount  "with  current  exchange,"  the  paper 
is  negotiable,  because  the  amount  can  be  easily  ascertained.     The 
amount  is  usually  expressed  in  both  figures  and  words.      In  case 
these  differ,  the  written  amount  prevails,  unless  there  is  evidence 
that  the  figures  are  correct. 

By  the  statutes  of  some  States,1  a  note  or  other  instrument  payable 
in  specific  chattels  is  negotiable,  and  in  some  States  it  has  been 
enacted  that  even  negotiable  words  are  not  necessary. 

144.  Payable   Absolutely. — There   can    be  no  condition  or  con- 
tingency attached  to  the  payment.     A  negotiable  paper,  it  has  been 
said,  "is  a  courier  without  luggage."     It  must  contain  certain  direc- 
tion or  order  or  a  certain  promise  to  pay.     A  mere  acknowledgment 
of  a  certain  indebtedness,  such  as  I.  0.  U.  $100,  will  not  usually  be 
sufficient.     While  the  promise  to  pay  may  be  implied,  yet  it  is  not 
expressed.     If  there  be  any  conditions  attached  to  the  payment,  such 
as,  provided  a  certain  ship  arrives,  or  when  A  shall  marry,  it  destroys 
its  negotiability.     So  also  if  it  be  payable  out  of  a  certain  fund,  for 
the  fund  may  not  be  sufficient. 

If  a  note  is  made  payable  by  installments,  with  a  condition  that  if 
default  be  made  in  the  payment  of  any  installment,  the  whole  shall 
be  immediately  payable,  this  form  is  not  so  uncertain  as  to  render 
the  note  a  mere  contract. 

It  will  be  remembered  that  the  object  of  negotiable  paper  is  to  serve 
as  a  substitute  for  money  in  facilitating  exchanges,  hence  it  must  be 
so  written  that  it  can  be  taken  without  hesitation,  and  its  value  easily 
determined. 

1  Alabama,  Illinois,  Indiana,  Iowa,  Kentucky,  Minnesota,  Montana,  Virginia. 


60  NEGOTIABLE   INSTRUMENTS. 

145.  Negotiable    in   Form. — This    means   that   it    must    contain 
negotiable  words.     The  instrument  must  show  on  its  face  that  it  was 
intended  to  pass  from  hand  to  hand,  and  not  to  remain  in  the  hands 
of  the  original  holder.     The  words  usually  employed  to  show  this  are 
"bearer,"  "or  bearer,"  "or  order,"  "or  assigns." 

N.  I. — A  paper  is  payable  to  bearer  when  it  is  payable  to  "A  or  bearer." 
(See  sec.  148. ) 

146.  Time     Specified. — Like    all    written     contracts,     negotiable 
paper   should   be  dated,   but   this  is   not  absolutely  necessary.     It 
should,  however,  state  the  time  when  due,  or  at  least  give  the  facts 
by  which  this  can  readily  be  determined.     This  is  for  two  reasons, 
(1)  that  the  holder  may  know  when  to  demand  payment,  and  (2)  that 
the  time  may  be  fixed  when  the  statute  of  limitations  begins  to  run. 
"On  demand,"  "at  sight,"   "at  -  -  days'  sight,"  "—  days  from 
date,"  are  common  expressions  in  this  connection,  and  are  sufficiently 
definite. 

An  instrument  may  be  antedated  or  postdated,  provided  it  is  not 
done  for  an  illegal  purpose,  and  when  the  date  is  given,  though  it  be 
not  the  correct  one,  it  is  the  one  that  will  be  used  in  fixing  the  date 
of  maturity.  If  the  date  be  left  blank,  any  holder  has  the  right  to 
insert  the  true  date;  and  should  he  insert  an  improper  date,  the 
parties  will  still  be  bound  to  an  innocent  bonafide  holder. 

147.  Delivery. — In  addition  to  the  above  essentials  which  go  to  the 
make  up  of  the  paper  itself,  it  must  be  delivered  before  it  has  effect. 
If  an  otherwise  valid  instrument  gets  into  circulation  without  the 
consent  and  through  no  fault  of  the  maker  he  is  not  liable  for  it. 

148.  The  law  in  reference  to  negotiable  instruments  arose  through  the  cus- 
tom of  merchants  and  in  many  respects  it  differs  from  the  rules  applicable 
to  other  forms  of  contracts.    These  customs  were  gradually  recognized  by  the 
courts  and  became  a  part  of  the  unwritten  law  as  might  any  custom  equally 
general.      The  different  states    modified  this  law  some  in  one  particular 
and  some  in  another.    Though  these  changes  were  not  usually  material  never- 
theless they  caused  some  confusion  and  an  effort  is  now  being  made  to  put 
the  law  into  statutory  form  and  have  all  the  states  ratify  it.      This  has 
already  been  done  in  sixteen  states,  l  and  is  being  considered  in  a  number  of 
others.     This  statute  is  called  the  "Negotiable  Instrument  Law."     Refer- 
ences will  be  made  to  this  law  from  time  to  time  and  they  will  be  designated 
by  "N.  I."    In  this  manner  changes  in  the  law  will  be  shown. 

149.  N.  I. — Negotiable  instruments  given  for  patent  rights  must  contain 
the  words,  "given  for  a  patent  right"  and  are  subject  to  the  same  defenses  as 
in  the  hands  of  the  original  holder. 

1  The  following  states  have  adopted  the  Negotiable  Instruments  Law:  Colorado,  Con- 
necticut, District  of  Columbia,  Florida,  Maryland,  Massachusetts,  North  Carolina,  North 
Dakota,  New  York,  Oregon,  Rhode  Island,  Tennessee,  Utah,  Virginia,  Washington  aud 
Wisconsin. 


DRAFTS.  61 


CHAPTER  XV. 
DKAFTS. 

150.  Introduction. — Having   learned   the  definition  of  negotiable 
paper,  and  noticed  in  detail  the  necessary  elements  which  make  this  a 
favored  class  of  contracts,  it  will  be  well  to  study  and  describe  indi- 
vidually the  papers  composing  the  class.     The  most  common  kinds 
are  draft,  or  bill  of  exchange,  note  and  check.     The  oldest  of  these  is 
the  draft.    It  was  early  recognized  as  negotiable  by  the  Law  Merchant 
of  England,  and  in  this  way  became  a  part  of  our  common  law.     It 
is,  in  fact,  the  only  instrument  that  is  negotiable  by  the  common  law. 
All  other  papers,  if  negotiable  at  all,  are  made  so  by  statutes,  pre- 
scribing the  conditions  of  negotiability. 

151.  Necessity  of  Drafts. — As  we  have  said,  the  bill  of  exchange  is 
the  oldest  negotiable  paper.     Its  name,  from  the  French  billet  de 
change,  indicates  quite  clearly  the  use  which  it  subserves.     Thus,  if 
A  and  B  are  in  ^Chicago,  and  C,  in  Havana,  be  indebted  to  A  five 
thousand  dollars,  and  B  be  going  to  Havana,  B  may  pay  A  his  five 
thousand  dollars  and  take  a  bill  of  exchange  drawn  by  A  in  Chicago 
upon  C  in  Havana,  and  collect  the  amount  from  C  when  he  arrives 
there.     All  parties  are  by  this  arrangement  accommodated,  for  A 
receives  his  debt,  due  at  a  distance,  by  transferring  it  to  B,  who 
receives  back  his  money  at  the  end  of  his  journey.     All  parties  have 
avoided  the  dangers  of  loss  by  robbery  and  the  perils  of  the  sea,  to 
say  nothing  of  the  expense  attending  the  transportation. 

From  this  primitive  use,  the  functions  of  the  bill  of  exchange  have 
increased  until  now  it  is  in  a  great  measure  the  equivalent  of  money 
itself.  As  an  evidence  of  indebtedness  it  facilitates  the  exchange  of 
credit  and  thereby  adds  to  the  sum  total  of  the  circulating  medium. 
The  buying,  selling  and  handling  of  credits,  evidenced  by  the  bill  of 
exchange,  forms  a  great  part  of  the  business  of  banking.  A,  of  New 
York,  owes  B,  of  Chicago.  B,  needing  the  money  at  once,  draws  a 
draft  on  A,  and  sells  it  to  his  bank  for  cash.  The  credit  has  now 


62  NEGOTIABLE   INSTRUMENTS. 

passed  from  B  to  the  bank.  The  Chicago  bank  will  then  forward 
the  draft  to  some  New  York  bank,  who  will  present  the  draft  to  A 
and  get  the  cash  for  it.  Instead  of  remitting  this  cash  to  the  Chi- 
cago bank,  as  its  agent,  it  will  be  passed  to  its  credit.  The  result  of 
all  this  exchanging  is  that  the  Chicago  bank  paid  out  money  in  Chi- 
cago, and  without  the  transporting  of  any  money,  secured  a  credit  on 
the  books  of  the  New  York  bank.  A  has  paid  his  debt  and  B  has 
secured  his  money. 

152.  Definition  of  Draft. — It  is  said  that  negotiable  instruments 
are  either  promises  or  orders  to  pay  money.     A  draft  is  an  order. 
It  may  be  defined  as  an  unconditional  order  in  writing  signed  by  the 
person  giving  it,  directing  a  second  person  to  pay  a  third  person,  or 
order  or  to  bearer,  a  certain  sum  of  money  on  demand  or  at  a  fixed 
future  time.     A  draft  drawn  on  a  person  in  another  country  or  State 
is  called  a,  foreign  Mil  of  exchange — if  drawn  on  a  person  in  the  same 
State  it  is  an  inland  bill  of  exchange.     The  term  draft  is  now  almost 
always  used  instead  of  bill  of  exchange. 

153.  Parties   to   a  Draft. — It  will   be  observed   from   the  above 
definition  that  there  are  three  original  parties  to  a  draft,  and  that 
there  may  be  an  indefinite  number  of  subsequent  parties.     The  per- 
son who  signs  the  draft  is  called  the  drawer,  the  one  to  whom  it  is 
addressed  and  who  is  to  pay  it,  is  called  the  drawee,  and  the  one  to 
whom  it  is  made  payable  is  called  the  payee. 


In  the  above  form  Bobbins  is  the  drawer,  Young  the  drawee  and 
Smith  the  payee.  Sometimes  the  drawer  and  the  payee  are  the  same 
person. 

The  subsequent  parties  are  the  ones  designated  by  the  payee  to 
whom  payment  should  be  made.  They  are  endorsees,  but  may  in 
turn  become  endorsers. 


DBAFTS.  63 

154.  Time  Draft. — The  above  draft  is  drawn  at  ten  days'  sight, 
and  is  called  a  time  draft.     If  payable  "at  sight"  it  would  be  a  sight 
draft,  because  payable  as  soon  as  the  drawee  sees  it,  which  would  be 
when  it  is  presented  to  him.     Some  States  allow  days  of  grace  on 
sight  drafts,  in  which  case  this  draft  would  be  due  three  days  after 
presentation  to  Young  and  his  acceptance  thereof.     If  the  draft  be 
drawn  "fifteen  days  from  date,"  it  is  a  time  draft.     If  payable  "on 
demand"  it  is  due  immediately  upon    presentation  without    grace. 
The  various  States  have  statutes  fixing  the  date  when  the  statute 
of  limitations  begins  to  run  on  demand  paper.     The  time  differs  from 
one  day  to  four  months  from  date.     (See  sec.  107.) 

155.  Acceptance  of  a  Draft. — All  drafts  payable  a  certain  num- 
ber of  days  after  sight,  and  also  sight  drafts,  when  allowed  days  of 
grace,   should   be   presented   for   acceptance.     The  conditions  of  a 
proper  presentation  will  be  explained  in  a  later  chapter. 

If  in  the  above  draft  we  suppose  that  Smith,  instead  of  transferring 
the  draft,  retains  it,  he  should  at  an  early  date  present  it  to  Young 
for  his  acceptance.  It  will  be  noticed  that  the  draft  itself  contains 
no  promise  on  the  part  of  Young  to  pay ;  in  fact,  until  presented  to 
him,  he  may  not  even  know  of  its  existence,  although  it  is  customary 
for  the  drawer  to  notify  the  drawee  that  he  will  draw  upon  him.  If 
Young  consents  to  pay  the  draft  according  to  its  terms,  he  is  said  to 
accept  it.  This  he  does  by  writing  across  the  face  of  the  draft, 
"Accepted  August  17,  1894,  L.  H.  Young."  The  word  "accepted" 
evidences  his  agreement  to  pay  it,  and  the  date  is  the  date  from 
which  we  begin  to  count  the  ten  days  and  the  three  days  of  grace,  if 
such  be  allowed.  By  this  means  we  are  able  to  fix  the  day  of 
maturity. 

If  on  presentation  Young  does  not  wish  to  accept  the  draft,  he 
should  return  it  to  Smith.  The  draft  is  then  said  to  be  dishonored. 

156.  How  to  Transfer  a  Draft. — The  payee  of  a  paper  is  always 
its  first  holder.     The  meaning  of  the  language  used  in  negotiable 
paper,  whether  it  be  a  promise  or  a  direction,  is  to  pay  to  the  person 
named  in  the  paper,  or  to  any  one  whom  he  may  designate.     When, 
therefore,  he  disposes  of  the  paper  he  names  the  buyer  as  the  one  to 
whom  payment  should  be  made.      This  he  does  by  endorsement. 
Thus,  suppose  in  the  form  we  have  given,  Smith,  after  having  the 
draft  accepted,  disposes  of  it  to  C.  W.  Benton.     This  he  does  by  writ- 
ing across  the  back  of  the  paper,  "Pay  to  C.  W.  Benton  or  order," 


64  NEGOTIABLE    INSTRUMENTS. 

signing  his  own  name  beneath  and  handing  it  over  to  Benton.  In 
like  manner  Benton  may  dispose  of  it  to  another  by  the  same  kind  of 
an  endorsement,  or  he  may  simply  write  his  own  name  on  the  back 
of  the  paper.  This  is  called  an  endorsement  in  blank,  and  has  the 
effect  of  making  the  paper  payable  to  bearer. 


<^^-^^£^Z^Z^W^' 

x-r—  ^r  /?  x^  ^  x^          /7       f      S~)/  S/J  "n  //?" 

(^^z^^  ( SX  (J^^i^^ny  &<%?' 


SIGHl    DRAFT. 

157.  A  Foreign  Bill  of  Exchange  is  one  that  is  drawn  by  a  resi- 
dent of  one  State  or  country  upon  a  resident  of  another.  On 
account  of  the  great  danger  of  loss  in  sending  these  by  sea,  it  early 
became  customary  to  draw  them  in  sets  of  three,  each  essentially  a 
duplicate  of  the  other  two.  These  were  sent  by  separate  routes,  and 
the  first  to  arrive  and  be  paid  made  the  others  void.  They  are  in 
substantially  the  same  form  as  inland  bills,  but  are  always  drawn  in 
the  currency  of  the  drawee's  country. 


NOTES. 


65 


CHAPTER   XVI. 
NOTES. 

158.  Definition. — As  we  have  previously  remarked,  notes  are  not 
negotiable  by  the  common  law,  but  have  been  made  so  by  statute.     A 
negotiable  promissory  note  may  be  defined  as  an  unconditional  writ- 
ten promise  made  by  one  person  to  another  engaging  to  pay  on 
demand  or  at  a  fixed  future  time  a  certain  sum  of  money  to  order  or 
to  bearer.     To  be  negotiable  a  note  must  of  course  possess  all  the 
essential  elements  of  negotiable  paper. 

159.  Form  of  Note. — 


160.  Parties   to   a  Note. — There  are  two   original   parties   to  a 
note.     The  maker  is  the  one  who  signs  it  and  agrees  to  pay  it.     The 
payee  is  the  one  to  whom,  or  to  whose  order,  it  is  made  payable. 

161.  Joint  and  Several  Notes. — If  the  note  be  drawn  "We  prom- 
ise to  pay,  etc.,"  and  is  signed  by  two  or  more  parties  it  is  a  joint 
note.     A  note  signed  by  more  than  one  person  and  beginning  "I 
promise"  is  several  as  well  as  joint,  and  so  is  one  by  two  makers 
running  "we  or  either  of  us."     In  case  of  a  joint  and  several  note, 
the  holder  can  sue  the  makers  all  together  or  he  may  sue  them 
separately,  for  each  assumes  the  entire  responsibility  of  paying  the 
whole  sum.     If  the  note  be  joint  only,  all  the  makers  must  be  joined 
in  the  suit.     At  common  law  it  is  settled  that  in  case  of  a  joint  obli- 


66  NEGOTIABLE  INSTRUMENTS. 

gation  if  one  of  the  obligors  die  his  estate  is  discharged  and  the  sur- 
vivor or  survivors  alone  can  be  sued.  The  statutes  in  many  States, 
however,  have  changed  this  rule. 

162.  Negotiable   Words.  —  These   are   as  necessary   in  negotiable 
notes  as  in  bills.     In  some  States  peculiar  phrases  are  also  essential 
to  the  negotiability  of  notes.     In  Alabama,  Kentucky,  Indiana  and 
Virginia  they  must  be  payable  at  a  bank.     In  Missouri,  "for  value 
received"  must  be  used  in  a  note  but  not  in  a  bill.     In  Illinois  a  note 
payable  to  "A  or  bearer"  is  not  under  the  statute  negotiable  with- 
out endorsement  by  A.     Any  peculiarity  in  the  statute  of  the  State 
where  a  negotiable  instrument  is  made  payable  should  be  carefully 
complied  with. 

N.  I.  —  Paper  payable  to  "A  or  bearer"  is  negotiable  without  endorsement. 

163.  Notes,  How    Transferred.  —  When  notes  are  negotiable  they 
may  be  transferred  by  endorsement  the  same  as  drafts.     The  payee 
becomes  the  first  endorser.     He  may  do  this  by  any  of  the  forms  of 
endorsement.     When  a  negotiable  note  is  properly  transferred  the 
endorsee  may  sue  and  collect  from  the  maker  in  his  own  name. 

It  will  be  remembered  that  an  ordinary  contract  assigned  must  be 
sued  on  in  the  name  of  the  original  payee.     (See  sec.  133.) 


DEMAND  NOTE. 

164.  Accommodation  Note.  —  It  sometimes  happens  that  a  person 
may  wish  to  assist  a  friend  financially  by  loaning  him  his  credit. 
As  a  rule  banks  will  not  loan  money  on  the  credit  of  one  man  alone. 
They  require  two  signatures.  A  wishes  to  borrow  money.  B  is  a 
friend  of  his  and  has  no  money  but  has  a  good  credit  and  is  willing 
to  assist  A.  B  draws  his  note  payable  to  A  for  the  amount,  and  this 
he  delivers  to  A.  As  no  consideration  has  passed  between  them  A 
can  not  collect  the  amount  from  B.  A  takes  the  note  to  a  bank  and 
sells  it  for  cash,  endorsing  it  over  to  the  bank.  At  maturity  A  is 
supposed  to  pay  it  and  thus  save  B  harmless,  but  if  he  fails  to  do  so 
B  must  pay  it  and  then  collect  in  turn  from  A.  This  is  called  an 


MUTES.  67 

accommodation  note,  because  it  is  given  solely  for  accommodation  and 
without  consideration.  Drafts  are  also  frequently  accepted  for  the 
same  purpose. 

165.  Notes  Issued  in  Blank. — Another  way  of  loaning  credit  is  to 
sign  a  blank  note  or  accept  a  blank  draft  which  is  afterwards  to  be 
filled  out  by  the  holder.     It  is  a  settled  principle  that  when  such 
papers  are  filled  out  the  parties  become  as  absolutely  bound  as  if  they 
had  signed  them  after  their  terms  were  written  out.     If  they  should 
be  filled  out  for  more  than  the  limit  agreed  upon  they  would  still  be 
binding  if  transferred  to  the  hands  of  an  innocent  holder  for  value. 

N.  I.  — A  note  or  acceptance  made  payable  at  a  bank  is  equivalent  to  an 
order  on  that  bank  to  pay  the  same  for  the  account  of  the  maker  or  acceptor. 

166.  Payee    in   Blank. — Notes  and  bills  are  also  often  executed  in 
full  with  the  exception  of  the  name  of  the  payee  which  is  left  blank 
that  it  may  be  afterwards  filled  up  with  the  name  of  the  last  holder, 
the  object  being  to  enable  the  buyer  to  transfer  the  paper  without 
incurring  the  responsibility  of  an  indorser.     Until  filled  the  paper  is 
practically  payable  to  bearer. 

167.  Judgment  Note. — This  is  in  form  an  ordinary  note  to  which  is 
added  (1)  a  power  of  attorney  for  the  holder  or  any  attorney  he  may 
appoint  to  confess  judgment  against  the  maker  when  payable;  (2)  a 
waiver  of  the  benefit  of  appraisement  laws  or  homestead  exemptions ; 
and  (3)  an  agreement  to  pay  attorney's  fees  for  such  confession. 

It  was  first  supposed  that  the  addition  of  these  conditions  made  a 
contract  of  the  instrument  and  that  it  thereby  lost  its  negotiability 
but  it  is  now  well  settled  that  it  is  negotiable  where  allowed,  which 
is  only  in  a  few  States. 

N.  I. — This  act  legalizes  these  notes  and  it  may  be  expected  that  they  will 
now  have  a  wider  use. 


Payable  ar~&&~>^£^^^^^i£a^C^/  /^/^z^L^f^--i^^x^^    <,  W^-EO^^^-X-^ 

elutrnn^^t*i,l^,:liix2^^^cnr^am**ma/t^^t-*&^,3i/  **l,ifa,d(3*4  TfctiuWW  Dollar,  fiditiaatl  it  AUonufi  fttt.) 
*nMM&3t*&&&&?lS*-**SSf3&&3mm*ttj3._. 


«^.^.^MIIInMmllrairtto 

) 

^/ 


68 


NE&OTIABLE    INSTRUMENTS. 


168.  Benefit  of  Judgment  Note.  —  A  judgment  note  is  often  of 
great  advantage  to  the  holder  over  an  ordinary  promissory  note. 
This  is  especially  true  when  time  is  an  important  element  in  the 
collection.  To  begin  suit  and  secure  judgment  on  a  judgment  note 
is  ordinarily  but  the  work  of  a  few  minutes,  or  hours  at  least,  while 
to  get  service,  bring  the  case  to  trial  and  secure  judgment  on  an 
ordinary  note  may  take  months.  In  the  meantime  more  fortunate 
creditors,  or  those  who  are  preferred  by  the  debtor  may  have  secured 
all  the  debtor's  available  assets. 

...........  Chicago,  111., 


after  date.. 
promise  to  pay  to  the  order  of  TUX  BdffKERS  KATlOtfAL  BANK,  of  Chicago,  at  iti  office  in  Chicago, 

DOLLARS, 

for  value  received,  with  interest  at  the  rate  of.-'~7  .....  per  cent,  per  annum  after^, 


.......  haye  deposited  with  and  pledged  to  «aid  BANKEHS 

curity  for  the  payment  of  the  above  Dote  and  all  other  Itabilltiei  of  the  underlined,  to  >aid  BANKE 
i  anigua.  heretofore  or  hereafter  contracted,  the  following  property  : 


The  market  value  of  which  is  ft     J—U   "   ^  r .    In  case  said  BANKERS  NATIONAL  BANE,  of  Chicago,  or  its  assies,  shall  at 

r  it  likely  to  depreciate  in  value, 

. _,. _ ny  time  increased,  then  in  all.  any 

....  r  its  assigns,  may  in  I'e,  or  their  discretion,  caU  for  a<Mr  .  .-  ^factory 

to  the  bolder  of  said  note.  nn<1  failure  to  furnish  the  samo  before  twelve  o'clock,  noon,  of  the  day  next  after  tlio  day  of  such  calling,  shall  make  said  note, 
and  any  and  all  other  liabilities  of  the  undersigned  to  said  HANKERS  NATIONAL  BANK,  of  Chicago,  or  Its  assigns,  without  notice  or  demand,  at  once  dua 
and  payable.  Said  call  fur  additional  security  may  bo  mndb  by  giving  any  of  tho  undersigned,  oral  or  written  notice  thereof,  or  by  leaving  written  notice 
thereof  at  any  office,  place  of  business  or  usual  abode  of  any  of  tho  uiideraipned. 

The  undersigned  hereby  gives  naid  BANKERS  NATIONAL  BANK,  of  Chicago,  or  Its  assigns,  full  and  irrevocable  power  to  sell  the  said  property,  or  any 
part  thereof,  without  ad  vertiBing  or  demanding  payment,  or  giving  notice,  at  public  or  private  sale,  or  at  brokers'  board,  in  case  said  BANKERS  NATIONAL 
BANK,  of  Chicago,  or  its  assigns,  shall  at  any  time,  bo  of  tlm  opinion  that  said  property,  or  any  part  thereof,  has  declined  or  may  decline  in  value,  or  is  or 
may  bocome  of  less  value  than  above  stated,  or  in  case  such  additional  security,  if  culled  for.  M hull  not  bo  furnished  as  above  provided,  or  in  case  said  not* 
or  any  other  liability  or  liabilities  of  tho  undersigned  to  said  BANKERS  NATIONAL  HANK,  of  Chicago,  or  it*  assigns  shall  not  be  paid  at  maturity. 

If  said  sale  shall  be  public. or  at  any  brokers'  board,  the  said  BANKERS  NATIONAL  BANK, of  Chicago,  or  Ita'assigns,  may  purchase  the  said  property, 
or  any  part  thereof  at  sucb  sale.  The  not  proceeds  of  such  salo,  after  the  payment  of  all  costs,  expense*  and  attorney's  fees  growing  out  of  or  connected 
with  said  property,  and  the  sale  and  delivery  thereof,  may  be  applied  upon  all  or  any  of  the  liabilities  (whether  due  or  not)  of  the  undersigned,  to  the 
hol'l'  r  of  H.-u'i  not..,  and  tho  surplus,  if  any.  shall  be  paid  to  the  undersigned. 

If  the  net  proceed!  of  such  sale  or  sale*  shall  not  pay  in  full,  all  of  the  liabilities  of  the  undersigned  to  said  BANKERS  NATIONAL  BANK,  of  Chicago. 
or  its  assigns,  then  all  such  liabilities  remaining  unpaid,  shall  bocome  at  once  due  and  payable,  and  boar  interest  at  the  rate  of  seven  (7)  per  centum  per 
auuura  from  the  time  of  such  sale.  In  caso  of  any  exchange  of  or  substitution  for.  or  addition  to  said  property,  or  any  part  thereof,  the  provisions  of  this 
agreement  shall  extend  to  such  new  exchanged,  substituted  or  additional  property.  And  the  undersigned  hereby  authorizes  tho  said  BANKERS  NATIONAL 
BANK,  of  Chicago,  at  any  time,  in  it*  diccmtion,  to  apply  any  money  or  moneys  which  said  bank  may  have  or  hold  on  deposit,  or  otherwise  for  the  under- 
signed, toward  th»  pa/meat  of  said  noto  aud  other  liabilities  whether  duo  or  not. 


FORM  OF  COLLATERAL  NOTE. 


CHECKS.  69 

169.  Collateral  Note. — It  is  frequently  the  case  when  a  note  is 
issued  some  form  of  security  passes  with  it  as  a  pledge  for  its  pay- 
ment. Thus  a  broker  wishing  to  borrow  money  from  his  banker 
may  give  his  note  and  pledge  stocks  or  bonds  which  he  may  own  to 
secure  the  banker.  For  this  purpose  a  special  form  of  note  called  a 
"collateral  note"  is  provided.  In  addition  to  the  usual  form  of  note 
it  contains  an  agreement  as  to  the  rights  of  the  holder  in  realizing 
on  the  securities  called  "collaterals."  The  collaterals  for  the  pro- 
tection of  both  parties  should  be  carefully  described.  The  N.  I.  law 
makes  such  notes  negotiable  notwithstanding  they  contain  contrac- 
tural  features. 

For  a  description  of  the  proper  proceedings  to  realize  on  collaterals 
pledged  when  there  has  been  a  default  see  56  S.  W.  Rep.,  1117. 


CHAPTER    XVII. 
CHECKS. 

170.  Definition. — A  check  is  an  order  drawn  upon  a  deposit  of 
funds  in  a  bank  for  the  absolute  payment  of  a  certain  sum  of  money 
to  a  certain  person,  or  his  order,  or  to  the  bearer,   and  payable 
instantly  on  demand.     It  will  thus  be  seen  to  contain  all  the  essential 
elements  of  negotiable  paper  and  without  doubt  it  forms  the  largest 
part  of  that  important  class  of  contracts. 

171.  Explanation. — As  the  definition  states,  a  check  is  a  kind  of 
draft,  and  all  we  have  said  in  reference  to  the  use  and  transfer  of  a 
draft  applies  with  equal  force  to  a  check.     It  will  be  noticed,  how- 
ever, that  a  check  is  not  entitled  to  days  of  grace  as  is  a  draft,  but  is 
payable  on  demand.     The  whole  theory  and  use  of  a  check  points  to 
its   immediate   payability;  in  fact   this  is   its  most   distinguishing 
feature. 

N.  I. — Sec.  322  provides  that  a  check  must  be  presented  within  a  reason- 
able time  after  its  issue  or  the  drawer  will  be  discharged  to  the  extent  of  the 
loss  caused  by  the  delay. 

172.  Parties  to  a  Check. — As   in    a    draft,   of    which   this  is    a 
species,  there  are  three  parties  to  a  check,  the  drawer,  or  one  who 
signs  it,  the  drawee,  which  is  always  a  bank,  and  the  payee.     The  con- 
tract represented  by  the  check  is  between  the  bank  and  the  drawer, 


70  NEGOTIABLE    INSTRUMENTS. 

consequently  if  for  some  reason  the  bank  refuses  to  pay  the  check, 
the  holder  cannot  maintain  an  action  against  the  bank.  It  is  his 
duty  to  take  all  steps  necessary  to  preserve  his  rights  against  the 
drawer.  For  the  same  reason  the  payee  cannot  stop  payment  on  a 
check  by  notifying  the  bank,  though  the  drawer  can  do  so.  After 
certification  the  case  is  different.  The  N.  I.  law  makes  no  changes 
in  this  law 

Chicago. 


CHECK. 

173.  Banking. — Business  men  do  not  as  a  rule  have  proper  facili- 
ties for  protecting  their  ready  money  from  either  fire  or  robbers.     It 
is  the  business  of  a  bank  to  offer  this  protection  without  charge,  its 
compensation  being  the  use  it  can  make  of  a  certain  proportion  of 
the  money  so  deposited  with  it,  which  it  can  expect  not  to  be  called 
on  for.     It  is  understood  that  any  money  so  left  on  deposit  is  subject 
to  check,  that  is  it  may  be  had  on  demand. 

174.  Method  of  Depositing. — When  money  is  deposited  in  a  bank 
some  kind  of  a  voucher  or  receipt  should  be  taken  from  the  officer 
who  receives  it.     This  voucher  is  usually  in  one  of  three  forms.     It 
may  be  a  bank  book,'&  certificate  of  deposit,  or  a  cashier's  check. 

175.  Bank  Book. — When  the  intention  is  to  withdraw  portions  of 
the  deposit  as  needed  and  to  add  to  it  from  time  to  time,  in  other 
words  to  keep  a  running  account,  the  bank  book  offers  many  advan- 
tages over  the  other  vouchers.     It  is  a  small  blank  book  usually  with 
a  printed  cover  and  headings,   purporting   to   be   a   copy  of   the 
depositor's  account  with  the  bank.     When  a  deposit  is  made  the  bank 
official  who  receives  it  enters  the  amount  on  the  left  hand  page,  and 
the  book  is  handed  back  to  the  depositor  and  operates  as  his  receipt. 
Against  this  deposit  checks  are  drawn  as  needed.     In  this  manner 
millions  of  dollars  are  deposited  with  banks  yearly  and   often   no 
other  record  is  made  by  the  depositor  than  that  contained  in  this 


CHECKS. 


71 


book.  Periodically  the  book  is  handed  in  to  the  bank  to  be  balanced, 
that  is  for  the  bank  to  insert  on  the  right  hand  page  the  several 
amounts  of  the  checks  paid  and  the  balance  now  due  the  depositor. 
When  the  depositor  wishes  to  pay  a  debt,  if  he  has  money  in  the 
bank,  he  can  draw  his  check  for  the  amount,  making  it  payable  to 
his  creditor  or  his  order  or  simply  to  the  bearer  and  hand  it  over  to 
him. 

176.  Object  of  Post  Dating. — It  frequently  happens  that  while  a 
depositor  may  not  have  money  in  bank  to-day,  yet  he  expects  to  have 
in  a  few  days.     He  can  draw  a  check  dating  it  forward  to  the  time 
when  he  feels  sure  he  will  have  that  amount  to  his  credit.     Such  a 
check  has  no  life  until  the  day  of  its  date  arrives  and  a  bank  paying 
it  before,  would  do  so  at  its  peril. 

177.  Negotiable  Words. — It  requires  the  same  necessary  elements 
to  make  a  check  negotiable  that  it  does  in  case  of  any  instrument. 
A  check  may  be  drawn  for  instance  without  such  negotiable  words  as 
"or  order,"  or  "or  bearer,"  and  in  that  case  would  be  non-negotia- 
ble.    When  a  check  is  negotiable  it  may  be  transferred  by  endorse- 
ment in  the  same  manner  as  other  instruments.     A  check  made 
payable  simply  to  bearer,  or  to  A  or  bearer,  may  be  transferred  with- 
out endorsement.     For  this  reason  it  is  not  safe  to  have  checks  so 
written  unless  they  are  to  be  used  at  once,  for  a  check  so  written  and 
lost  or  stolen  might  be  cashed  by  the  finder  or  by  a  thief. 

178.  Certified  Check. — If  the  one  who  is  about  to  receive  a  check 
is  doubtful  whether  the  drawer  has  that  amount  in  the  bank  to  his 


CERTIFIED   CHECK. 


credit  or  is  fearful  that  having  it  in  the  bank  he  may  withdraw  it,  he 
may  insist  on  its  being  certified  by  the  bank  as  good.     The  bank 


72  NEGOTIABLE    INSTRUMENTS. 

does  this  by  writing  or  stamping  across  the  face  of  the  check  usually 
the  words  "Certified"  and  signing  it  by  the  proper  official.  By  this 
act  the  bank  agrees  to  pay  the  check  and  to  reserve  that  amount  out 
of  the  drawer's  deposit.  There  is  now  for  the  first  time  a  contract 
between  the  holder  and  the  bank.  The  bank  would  now  be  obliged 
to  pay  the  check  even  if  it  proved  to  be  a  forgery,  for  it  is  a  rule 
that  a  bank  is  bound  to  know  the  signatures  of  its  depositors. 

If  the  holder  of  a  check  should  take  it  to  the  bank  and  procure  its  certifi- 
cation and  before  the  check  was  presented  for  payment  the  bank  would  fail 
it  would  not  be  the  drawer's  loss. 

N.  I. — If  the  holder  of  a  check  procures  it  to  be  certified  the  drawer  and 
all  endorsers  are  released. 

179.  Checks  Operate  as  Receipts. — When   a  debtor  is   paying  an 
obligation  by  check,  he    can  and  frequently  does,  make  the  check 
payable  to  his  creditor  or  order.     In  order  to  transfer  this  to  a  new 
holder,  or  to  get  it  cashed  at  the  bank  it  must  be  endorsed,  and  when 
the  checks  are  entered  in  the  depositor's  bank  book  by  the  bank 
they  are  returned  to  him.     The  endorsements  of  his  creditors  operate 
as  vouchers  that  those  amounts  have  been  paid. 

180.  Certificate  of  Deposit. — This  is  another  form  of  voucher  for 
money  deposited  in  a  bank.     It  will  be  noticed  that  the  language 
used  is  not  an  express  promise  to  repay  the  amount  acknowledged  as 
received   and  for   this   reason  it  was  early  held  as  not  negotiable 
although  correct  in  all  other  respects.     They  are    now,   however, 
generally  recognized  as  negotiable  when  drawn  in  negotiable  form. 

Money  so  deposited  is  not  subject  to  check  and  if  a  portion  of  it  is 
desired  either  an  endorsement  of  partial  payment  is  made  on  the 
back,  or  the  old  certificate  is  taken  up  and  a  new  one  issued  for  the 


/•//.  >K/tff/i  c/ffi<d^'rtfca&^m^eiwwc/^JjdL3&^^ 
amtfarJO'n/iHnv 

,.& 


INTEREST  TO  STOP  AT  MATURITY. 


y,',,./,:,,  <J$ 


CERTIFICATE  OF  DEPOSIT. 


CONDITIONS    OF    TRANSFER.  73 

lesser  amount.     This  is  a  favorite  method  of  depositing  when  it  is 
expected  that  the  amount  shall  remain  for  a  long  time. 

It  may  be  transferred  by  endorsement  in  the  same  way  as  other 
paper. 

The  above  instrument  is  not  negotiable  on  account  of  being  payable  "in 
current  funds. "  An  endorser  of  it  would  incur  no  liability.  36  Pa.  State 
Reports,  498.  28  Pa.  State  Reports,  452. 

181.  Cashier's  Check. — It  is  now  the  custom  in  many  banks  to 
issue  a  cashier's  check  instead  of  a  certificate  of  deposit.  This  is 
simply  an  ordinary  check  in  form  drawn  by  the  cashier  or  teller  in 
his  official  capacity.  It  is  of  course  payable  on  demand  and  may  be 
used  exactly  as  an  ordinary  check. 


CHAPTER  XVIII. 
CONDITIONS  OF  TRANSFER. 

182.  Explanation. — Having   set   forth  the   elements  necessary  to 
constitute  a  negotiable  paper,  and  having  examined  them  in  detail, 
we  now  come  to  consider  the  conditions  under  which  it  must  be 
transferred  from  the  hands  of  the  payee,  in  order  to  insure  a  good 
title  to  the  holder.     The  six  necessary  elements  for  negotiability 
referred  to  the  form  and  substance  of  the  paper  itself.     We  are  now 
about  to  consider  the  circumstances  under  which  the  transfer  is  made. 
These  are  four  in  number,  and  are  as  follows:      (1)   Transfer  for 
value;  (2)   Transfer  to  an  innocent  holder;  (3)   Transfer  in  the  usual 
course  of  business;  and  (4)   Transfer  before  maturity. 

183.  Transfer  for  Value. — We  have  learned  that  negotiable  paper 
forms  an  exception  to  the  general  rule  that  the  buyer  will  take  no 
better  title  than  the  seller  had  himself.     In  order  to  fall  within  the 
exception  the  transfer  must  be  made  for  value.     If  no  value  be  given 
for  the  paper  the  purchaser  will  not  be  injured  by  its  being  declared 
void  in  his  hands.     This  consideration  need  not  be  money,  but  may 
be  anything  the  law  considers  as  valuable.     A  new  liability  incurred 
will  be  sufficient.     A  lost  paper  cannot  be  enforced  by  the  finder 
because  he  did  not  give  value  for  it,  but  he  may  transfer  it  so  that 
it  can  be  enforced  in  the  new  holder's  hands.     On  the  other  hand  a 


74  NEGOTIABLE   INSTRUMENTS 

negotiable  note  given  for  an  illegal  consideration,  while  absolutely 
void  in  the  hands  of  the  payee  if  transferred  for  value,  may  be  valid 
in  the  hand  of  the  new  holder. 

By  the  N.  I.  law  a  negotiable  paper  transferred  in  consideration  of  an 
existing  debt  will  be  deemed  as  transferred  for  value. 

184.  Transfer  to  an  Innocent  Holder. — An    innocent     holder    is 
one  who  takes  the  paper  innocent  of  any  defects  in  the  seller's  title 
or  right  to  recover  on  it.     If  he  takes  the  paper  and  even  pays  value 
for  it,  knowing  that  the  seller's  title  is  poor  or  that  there  is  a  good 
defense  against  the  instrument,  he  is  not  an  innocent  holder.     He 
will  in  this  case  take  the  seller's  title  and  no  better. 

This  does  not  mean  that  he  can  close  his  ear  to  any  suggestion  of 
fraud  or  defects  in  the  seller's  title.  If  he  receive  such  suggestions 
or  if  the  circumstances  are  such  as  to  excite  the  suspicions  of  a 
prudent  man  that  the  paper  may  not  be  valid,  he  should  investigate 
before  buying. 

185.  Transfer  in  the  Usual   Course   of   Business. — In    the    third 
place  the  holder  must  acquire  the  paper  in  the  usual  course  of  busi- 
ness.    By  this  is  meant  that  it  must  come  as  a  regular  transfer 
according  to  the  customs  of  commercial  transactions.     A  transfer  in 
payment  of  a  pre-existing  debt  is  now  generally  conceded  to  be  of 
this  character.     A  receiver  or  assignee  appointed  by  court  and  who 
comes  into  possession  of  a  bill  or  note  by  virtue  of  his  appointment 
does  not  get  it  in  the  usual  course  of  business. 

As  to  whether  one  who  takes  a  note  or  bill  as  collateral  security 
takes  it  in  the  "usual  course  of  business"  the  decisions  are  by  no 
means  uniform.  The  better  rule  seems  to  be  that  if  the  holder 
takes  the  legal  title  by  endorsement  and  has  given  a  consideration 
for  the  transfer,  he  is  entitled  to  recover  upon  it  even  against  those 
who  might  have  made  a  defense  against  his  pledger — at  least  to  the 
extent  of  the  debt  of  which  the  instrument  is  collateral  security. 

186.  Transfer  Before  Maturity. — Negotiable  paper  may  be  trans- 
ferred by  endorsement  or  delivery  either  before  or  after  maturity. 
The  paper  until  paid  will  retain  all  its  commercial  attributes,  but 
there  is  this  vital  distinction  between  the  rights  of  one  who  receives 
a  paper  before  maturity  and  of  one  who  receives  it  after  maturity. 
He  who  takes  it  after  maturity  simply  takes  the  rights  of  his  trans- 
ferrer.     If  the  transferor's  right  and  title  be  good  so  will  his,  but  if 


CONDITIONS   OF    TRANSFER.  75 

there  be  defenses  against  the  transferor's  right  and  title  they  can 
also  be  raised  against  the  transferee. 

B  secures  A's  note  through  fraud.  B  holds  the  note  until  after  maturity, 
when  he  endorses  to  it  C,  an  innocent  holder,  in  the  usual  course  of  business 
for  value.  C  presents  the  note  to  A  for  payment.  A  need  not  pay  the  note. 
Had  C  received  the  note  before  maturity  it  would  have  been  good  in  his 
hands  and  A  would  be  obliged  to  pay  it.  If  C  knew  that  A  had  no  defense 
against  the  note  he  would  have  been  safe  in  buying  it,  even  though  it  were 
past  due. 

187.  A  Natural  Inference. — From  what  has  been  said  it  is  but  a 
natural  inference  that  though  the  paper  while  in  the  hands  of  the 
original  holder  may  have  many  defects  and  may  be  subject  to  many 
defenses;  yet  if  it  passes  before  maturity,   to  an  innocent  holder, 
for  value,  and  in  the  usual  course  of  business,  it  is  forever  purged  of 
its  imperfections.     Future  purchasers  of  it  take  not  the  right  of  the 
original  holder  but  of  the  first  innocent  purchaser.      Subsequent 
holders  need  not  be  innocent  of  the  original  defenses  against  it. 

188.  When   Paper    Matures. — The    exact    date     of    maturity  is 
always  an  important  fact  and  one  about  which  there  should  be  no 
dispute,  for  upon  it  right  and  title  frequently  depend. 

When  the  time  of  a  paper  is  stated  in  days,  actual  number  of  days 
are  counted;  when  it  is  stated  in  months,  calendar  months  are 
understood.  The  date  of  the  paper  is  not  usually  a  part  of  the  time, 
but  the  date  of  maturity  is. 

Most  states  have  statutes  fixing  the  length  of  time  after  which  a 
demand  paper  if  unpaid  is  presumed  to  be  "past  due." 

189.  Days  of  Grace. — These  were  three  days  allowed  by  the  law 
merchant  to  the  drawee  of  a  draft,  more  than  the  time  stated  in  the 
draft.     They  were  originally  allowed  as  a  matter  of  grace  or  favor 
and  no  charge  for  interest  was  made  for  them.     Finally  they  were 
recognized  by  the  courts  as  a  right  belonging  to  the  debtor  though  he 
might  be  required  to  pay  interest  for  them.     They  are  still  allowed 
by  some  states  on  negotiable  notes  and  time  drafts.     Many  states 
have  abolished  them  by  statute;1  and  some  states  allow  them  even 
on  sight  drafts*  and  a  few  states  have  restricted  them  to  paper  paya- 
ble at  a  bank.     Days  of  grace  may  be  waived  by  express  stipulations 
in  the  instrument 

1  New  York,  Illinois,  Connecticut,  California,  Idaho,  Vermont,  District  of  Columbia, 
Nevada,  New  Hampshire,  Tennessee,  West  Virginia,  Washington,  Colorado,  Delaware, 
Florida,  Maine.  Maryland,  Massachusetts,  Wisconsin,  Rhode  Island,  Virginia,  North 
Dakota,  Ohio,  Montana,  New  Jersey,  Oregon,  Pennsylvania,  Utah. 

*  Alabama,  Arizona,  Indiana,  Iowa,  Maine,  Massachusetts,  Michigan,  Minnesota, 
Nebraska,  North  Dakota,  Oklahoma,  South  Carolina,  South  Dakota,  Wyoming. 


76  NEGOTIABLE   INSTRUMENTS. 

The  N.  I.  law  abolishes  grace  and  provides  that  when  the  day  of  maturity 
falls  on  Sunday  or  a  holiday  the  paper  is  due  on  the  next  succeeding  busi- 
ness day.  If  due  on  Saturday  it  should  be  presented  on  the  next  succeeding 
business  day  but  if  payable  on  demand  may  be  presented  before  twelve  o'clock 
noon  on  Saturday  when  that  entire  day  is  not  a  holiday. 

When  the  last  day  of  grace  falls  on  Sunday  the  paper  is  usually  due 
on  Saturday,  and  when  that  day  is  a  holiday  fhen  on  Friday. 

190.  Consideration. — The  consideration  need  not  be  expressed  in 
the  paper.     There  should  always,  as  a  matter  of  fact,  be  a  considera- 
tion and  if  the  paper  is  still  in  the  hands  of  the  original  parties  proof 
may  be  given  to  show  a  lack  of  it. 

Not  so,  however,  when  the  paper  has  been  transferred  before 
maturity  to  an  innocent  holder  for  value.  It  will  then  be  conclus- 
ively presumed  that  there  was  originally  a  consideration  given  for  it. 
When  the  consideration  is  acknowledged  in  the  paper  it  is  usually  dono 
by  the  words  value  received,  but  as  we  have  said  these  are  not  neces- 
sary, except  in  some  few  states. 

191.  Defenses. — While  it  is  not  possible  to  state  in  advance  what 
the  defences  are  that  may  be  avoided  by  observing  the  proper  condi- 
tions of  transfer,  yet  the  most  common  ones  are  set-off,  recoupment, 
fraud  and  lack  of  consideration.     Whatever  the  defense,  it  must  arise 
out  of  the  transaction  in  which  the  instrument  was  executed  and  not 
out  of  other  matters. 

192.  Kecapitulation. — Negotiable  paper  has  been  created  to  circu- 
late with  perfect  freedom  among  business  men,  and  for  this  reason  he 
who  takes  it  is  protected  in  every  way  possible  consistent  with  the 
rights  of  others.     A  bill  or  note  is  offered  instead  of  money.     The 
purchaser  observes  that  the  maker  is  one  who  is  responsible.     He  of 
course  takes  his  chances  that  the  signature  is  genuine.     He  observes 
that  the  paper  is  made  out  in  proper  form  and  that  it  is  not  yet  due. 
Except  the  genuineness  of  the  signature  these  are  all  matters  that 
appear  on  the  face  of  the  instrument,  and  it  is  as  far  as  the  law 
requires  the  purchaser  to  investigate.     If  he  were  obliged  to  guard 
against  latent  defects  in  the  instrument  it  would  greatly  hinder  its 
circulation.     Having  satisfied  himself  on  these  points  he  may  safely 
purchase  the  paper  and  will  be  protected  in  his  recovery  upon  it. 


ENDORSEMENTS.  77 


CHAPTER   XIX. 

ENDORSEMENTS. 

193.  Objects. — The  object  of  an   endorsement   is   two   fold,    (1) 
to  effect  a  transfer  of  the  title  of  the  instrument,  and  (2)  to  evidence 
a  contract.     It  will  be  remembered  that  a  negotiable  instrument  is 
to  circulate  as  freely  as  possible,  and  therefore  endorsements  are 
made   as   simple   as   possible.      To  require    the   entire   contract   of 
endorsement  to   be   written   out   in   full   each    time,  would  greatly 
impede  the  free  circulation  of  the  instrument.     The  law,  therefore, 
supplies  it  by  implication.     The  contract  exists,  therefore,  and  is  just 
as  clearly  defined  as  if  written  out  in  each   case.     The   one   who 
endorses  a  paper  is  called  an  endorser,  and  the  one  to  whom  it  is 
transferred  is  called  the  endorsee. 

If  the  instrument  itself  contains  negotiable  words  the  endorsement 
need  not  contain  them.  Hence,  "Pay  John  Smith"  has  the  same 
effect  as  "Pay  John  Smith  or  order." 

194.  Endorsements,  Where  Made. — All  endorsements,  as  the  name 
implies,  should  be  written  on  the  back  of  the  instrument  and  not  on 
a  separate  sheet  of  paper.     The  first,  if  it  be  a  blank  endorsement, 
should  be  written  about  one  inch  from  the  left  hand  end  of  the 
paper,    and  subsequent  endorsements  immediately  under,    in   their 
order.     They  should  all  be  written  transversely  and  not  longitudinally. 

The  law  of  the  state  where  an  endorsement  is  made  governs  the 
liability  of  the  endorser.  The  law  of  the  state  where  a  paper  is  pay- 
able governs  the  liability  of  the  maker.  By  the  N.  I.  law  an  endorse- 
ment is  presumed  to  be  made  where  the  instrument  is  dated. 

195.  What  Determines  form  of  Endorsement. — If  an   instrument 
is  made  payable  to  bearer,  or  to  A  or  bearer,  it  can  be  transferred 
without   endorsement,    but   if  payable   to   A   or   order,  it   must  be 
endorsed  in  order  to  transfer  its  title.     This  endorsement  may  be 


78  NEGOTIABLE   INSTRUMENTS. 

any  one  of  several  kinds,  each  differing  somewhat  in  form,  and  in 
some  cases  in  effect.     The  most  common  forms  are : 

1.  In  Blank. 

2.  In  Full. 

3.  Without  Eecourse. 

4.  Eestrictive. 

5.  Conditional. 

In  Illinois  paper  payable  to  A  or  bearer  must  be  endorsed  to  pass 
the  legal  title.  Even  though  it  be  not  necessary  to  endorse  paper 
payable  to  bearer,  yet  if  it  be  so  endorsed  the  endorser  is  liable. 

N.  I.— A  negotiable  paper  payable  to  A  or  bearer  may  be  transferred  with- 
out endorsement  and  the  legal  title  will  pass. 

196.  Endorsement  in  Blank. — An  endorsement  in  blank  is  simply 
the  signature  of  the  endorser.     It  is  so  called  because  the  endorse- 
ment proper  is  left  blank  and  may  be  filled  in  by  any  subsequent 
holder.     The  effect  of  endorsing  a  paper  in  blank  is  to  make  it  paya- 
ble to  bearer  and  it  may  then  pass  from  hand  to  hand  without  further 
endorsement. 

197.  Endorsement  in   Full. — An    endorsement  in    full    mentions 
the  name  of  the  person  to  whom  or  to  whose  order  it  should  be  paid. 
By  this  endorsement  the  paper  cannot  be  transferred   without  the 
endorsement  of  the  endorsee  and  is  therefore  a  good  form  to  use 
when  sending  a  negotiable  paper  through  the  mail. 

198.  Endorsement  without  Recourse.  — If  the  endorser  wishes  sim- 
ply to  assign  the  paper  and  to  relieve  himself  of  a  portion  of  his 
responsibility  for  its  payment    he  should  add  to  his  endorsement 
"without  recourse."     Such  an  endorsement  does  not  affect  the  nego- 
tiability of  the  paper,  but  simply  assigns  the  title  to  the  paper  and  it 
may  be  endorsed  again.     There  are  however,  some  things  which  every 
endorser  warrants.     Therefore  the  holder  may  recover  even  from  an 
endorser  without  recourse,  (I)  if  any  of  the  prior  signatures  were  not 
genuine;  (2)  if  the  note  was  invalid  for  the  want  or  illegality  of  the 
consideration ;  or  (3)  if  any  prior  party  was  incompetent  or  (4)  if  the 
endorser  was  without  title. 

199.  Eestrictive  Endorsement. — When  there  is  a  desire  to  restrict 
the    further  negotiability  of  the   paper,  a  restrictive  endorsement 
should  be  used.     There  are  several  forms  of  these  in  common  use. 


ENDORSEMENTS.  79 

"Pay  to  A  B  only,"  or  "to  A  B  for  my  use"  is  restrictive.  When 
paper  is  left  with  an  agent  for  collection  the  usual  endorsement  is 
"Pay  to  A  B  for  collection."  This  does  not  amount  to  an  actual 
transfer,  but  is  evidence  of  the  creation  of  an  agency  and  it  may  be 
recalled  at  any  time  and  the  endorsement  stricken  off.  It  is  for  this 
reason  the  safest  endorsement  to  use  in  such  a  case,  for  it  does  not 
vest  the  title  in  the  endorsee  so  that  he  can  bring  a  suit  in  his  own 
name,  neither  can  he  transfer  it.  Of  the  same  nature  are  endorse- 
ments on  checks  deposited  in  a  bank.  "For  deposit  to  account  of  A 
B"  is  a  common  form  for  this  purpose. 

This  endorsement  does  not  so  limit  the  circulation  of  the  instrument 
as  to  compel  the  endorsee  to  present  it  personally.  He  may  again 
endorse  it,  but  subsequent  endorsers  take  only  his  right.  Thus,  a 
check  drawn  on  a  Boston  bank  may  be  deposited  in  a  Chicago  bank, 
with  the  usual  endorsement  of  "For  Deposit,  etc."  The  Chicago 
bank  may  again  endorse  it  "For  Collection,  etc."  and  forward  it  to 
its  Boston  correspondent,  who  will  present  it,  not  as  its  owner  or 
holder,  but  as  an  agent  of  the  holder.  The  ownership  of  the  paper 
has  been  restricted  by  the  first  restrictive  endorsement.  By  a  rule 
of  the  clearing  houses  paper  bearing  restrictive  endorsements  will 
not  be  received  by  members  for  deposit. 

200.  A   Conditional   endorsement  is  one  by  which   the   endorser 
annexes  a  condition  to  the  order  for  payment.     "Pay  to  A  B  or  order 
if  he  is  living  when  due"  is  a  conditional  endorsement.     It  has  been 
held  that  an  acceptor  who  paid  a  bill  endorsed  conditionally  and 
before  the  condition  was  satisfied,  was  liable  to  pay  it  again. 

It  is  provided  in  Sec.  69  N.  I.  law  that  the  party  required  to  pay  an 
instrument  so  endorsed  may  disregard  the  condition  but  the  person  receiving 
it  must  hold  the  money  subject  to  the  rights  of  the  person  so  endorsing. 

201.  Who  May  Endorse. — If  the  paper  is  payable  to  the  order  of 
the  payee,  he  or  his  legal  representative  must  be  the  endorser.     In 
the  case  of  a  bankrupt  the  assignee  and  not  the  bankrupt  is  the  one 
to  endorse.     An  infant  may  make  endorsement,  but  like  all  his  con- 
tracts he  may  avoid  it.     A  paper  payable  to  a  copartnership  may  be 
endorsed  by  any  member  of  the  firm  using  the  firm  name.     A  paper 
payable  to  several  payees  jointly  should  be  endorsed  by  all.     An  exe- 
cutor or  administrator  will  be  personally  bound  on  an  endorsement 
although  he  add  "executor"  to  his  name.     He  should  endorse  with- 
out recourse  to  avoid  personal  liability. 


80  NEGOTIABLE    INSTRUMENTS. 

Except  by  statute  a  person  who  endorses  a  non-negotiable  instru- 
ment or  one  who  places  an  assignment  on  a  negotiable  instrument 
incurs  no  liability. 

202.  Forms  of  Endorsements. 

1.  ENDORSEMENT  IN  BLANK: 

"E.  C.  BECKER." 

2.  ENDORSEMENT  IN  FULL: 

"Pay  F.  F.  Judd  or  order. 

M.  JORDAN." 

3.  ENDORSEMENT  WITHOUT  RECOURSE: 

"Pay  to  the  order  of  G.  W.  Hootman,  without  recourse  to  me. 

ALLEN  MOORE." 
Or,  "J.  H.  King,  without  recourse.''1 

4.  ENDORSEMENT,  RESTRICTIVE: 

"Pay  to  J.  C.  Smith,  for  my  use. 

H.  T.  CLARKE." 

5.  ENDORSEMENT,  CONDITIONAL: 

"Pay  to  A.  E.  Brown  or  order,  provided  he  arrives  at  twenty-one 

years  of  age. 
C.  W.  BENTON." 

203.  Successive  Endorsements. — When  several  persons  endorse  an 
instrument  in  succession  each  is  liable  to  all  who  succeed  him  and  the 
obligation  is  several  and  not  joint.     Each  endorser  places  his  name 
on  the  paper  knowing  that  he  is  making  himself  conditionally  liable 
to  all  subsequent  holders,  and  that  he  can  in  turn  look  to  all  anteced- 
ent to  him.     Where  there  are  several  payees,  it  matters  not  which 
endorses  first  for  they  will  be  liable  jointly  and  not  severally. 

When  there  is  an  endorsement  before  that  of  the  payee's  there  is 
much  conflict  of  authority  as  to  its  legal  status.  In  some  states 
such  a  person  is  presumed  to  be  a  joint  maker1  and  in  others,  an 
endorser,8  and  in  still  others,  a  guarantor.3  But  in  many  states 
evidence  is  allowed  to  rebut  this  presumption. 

Some  states  have  statutes  permitting  joint  action  against  the 
endorser  and  the  maker,  but  such  is  not  the  Law  Merchant. 

204.  The  Endorser's  Contract. — We  have  previously  stated  that  an 
endorsement  was  usually  for  two  purposes,  (1)  to  effect  a  transfer 

1  Massachusetts,  Colorado,  Tennessee,  Nebraska,  North  Carolina,  Minnesota,  Delaware, 
Michigan,  Maine,  New  Hampshire,  South  Carolina,  Maryland,  Wisconsin,  Missouri,  Texas, 
Louisiana,  Arkansas. 

'  Pennsylvania,  New  York,  Iowa. 

»  California.  T'linois,  Connecticut,  Kansas,  Nevada,  Ohio. 


ENDORSEMENTS.  81 

and  (2)  to  evidence  a  contract.  We  come  now  to  consider  this  con- 
tract. A  negotiable  paper  is  personal  property  and  the  seller  of  it  is 
responsible  to  the  immediate  buyer  on  the  usual  principle  of  sales 
whether  he  endorses  it  or  not.  When  he  does  endorse  it  his  contract 
is  not  only  with  his  endorsee  but  with  all  subsequent  endorsees.  Part 
of  his  contract  is  absolute  and  part  conditional.  He  absolutely  con- 
tracts (1)  that  the  instrument  is  in  every  respect  genuine;  (2)  that  it 
is  the  valid  instrument  it  purports  to  be;  (3)  that  the  ostensible 
parties  are  competent ;  and  (4)  that  he  has  lawful  title  to  it  and  the 
right  to  endorse  it.  If  any  of  these  engagements  are  not  fulfilled, 
the  drawer,  the  endorser  or  one  who  transfers  without  endorsing,  or 
an  endorser  "without  recourse"  may  be  sued  for  the  recovery  of  the 
original  consideration  which  has  failed,  and  this  without  proof  of 
demand  and  notice.  None  of  the  above  provisions  may  be  violated, 
yet  the  instrument  may  not  be  paid.  His  contract  includes  further, 
that  the  bill  or  note  will  be  accepted  or  paid  as  the  case  may  be, 
according  to  its  purport;  but  this  engagement  is  conditioned  upon 
due  presentment,  demand  and  notice.  What  constitutes  due  demand 
and  notice  will  be  discussed  in  future  chapters,  but  the  student  will 
not  fail  to  observe  that  a  strict  compliance  on  the  part  of  the  holder 
with  the  above  conditions  is  a  condition  precedent  to  the  endorser's 
liability ;  that  a  failure  on  the  part  of  the  holder  to  observe  the 
slightest  formality  will  jeopardize  his  right  of  action  against  the 
endorser. 

When  a  negotiable  paper  is  transferred  by  delivery  only,  the  seller's 
liability  extends  only  to  the  immediate  transferee. 


NEGOTIABLE    INSTRUMENTS. 


CHAPTER  XX. 

PRESENTMENT  FOR  ACCEPTANCE. 

205.  Why  and  When  Necessary. — The  drawer's  contract  is  a  con- 
ditional one.  It  is  similar  to  the  endorser's,  and  unless  the  holder 
complies  with  all  the  conditions  which  are  implied  in  the  drawer's 
contract,  he  will  lose  his  right  of  action  against  him.  For  the  pur- 
pose then  of  charging  the  drawer,  also  of  fixing  the  day  of  maturity, 
drafts  due  a  certain  number  of  days  after  sight,  also  sight  drafts 
when  days  of  grace  are  allowed,  should  be  presented  to  the  drawee  for 
acceptance.  It  is  the  right  of  the  holder  to  present  for  acceptance  a 
draft  due  a  certain  number  of  days  from  date,  and  if  it  be  refused  it 
need  not  be  presented  for  payment  when  due,  but  notice  should  be 
sent  the  drawer  at  once.  If  such  a  draft  is  not  presented  for  accep- 
tance, the  holder  loses  none  of  his  rights  by  not  doing  so. 

"When  a  bill  payable  at  a  certain  time  is  placed  in  an  agent's  hands 
for  negotiation  or  collection,  it  is  his  duty  to  present  it  for  accep- 
tance. With  this  exception,  the  general  rule  is  that  such  a  bill  need 
not  be  presented  for  acceptance,  but  only  for  payment. 


FORM  OF  ACCEPTANCE. 


206.  Effect  of  Acceptance.  — The  drawee  is  usually  under  no  obliga 
tion  to  accept  unless  has  he  agreed  to  do  so,  and  the  holder  cannot 
sue  him  even  though  he  have  funds  belonging  to  the  drawer  for  there 
is  no  contract  between  the  holder  and  the  drawee.     If  the  drawee 


PRESENTMENT  FOR  ACCEPTANCE.  83 

refuse  to  accept,  and  the  holder  has  neglected  to  take  the  steps  neces- 
sary to  charge  the  drawer,  he  may  lose  the  entire  amount.  He  can- 
not give  up  the  draft  and  seek  recovery  on  the  original  debt.  But 
an  acceptance  operates  as  a  full  legal  assignment  of  the  amount  to 
the  holder,  and  if  payment  be  not  made  according  to  the  terms  of 
the  instrument,  the  holder  may  sue  the  acceptor  for  there  is  now  a 
contract  between  them. 

207.  Points   to    Be    Observed. — That  every  step  to  be  taken  to 
charge  the  drawer  may  be  properly  taken,  the  following  must  be  duly 
considered:      (1)  By  and  to  whom  should  presentment  be  made; 
(2)  Where;  (3)  When;  (4)  How. 

208.  By  and  to  Whom  a  Bill  Should  Be  Presented.— The  bill  should 
be  presented  by  the  holder  or  his  authorized  agent,  to  the  drawee  or 
his  authorized  agent.     The  party  in  possession  is  presumed  to  have 
the  right  to  present,  and  the  drawee  takes  no  risk  when  he  accepts 
the  draft  for  presentment,  and  protest  for  non-acceptance  will  inure 
to  the  benefit  of  the  rightful  holder.     If  drawn  on  a  firm,  present- 
ment to  any  partner  is  sufficient,  but  if  drawn  on  two  persons  not 
partners,  it  should  be  presented  to  both,  and  if  the  acceptance  of 
one  only  is  taken,  it  is  at  the  risk  of  the  holder.     Greater  care  must 
be  used  to  find  the  drawee  or  his  agent  in  presentment  for  acceptance 
than  in  presentment  for  payment.     A  clerk  in  the  drawee's  office, 
and  in  apparent  charge,  is  a  competent  party  to  whom  to  present  a 
bill  for  either  payment  or  acceptance. 

N.  I. — When  the  drawee  is  an  adjudged  bankrupt  or  has  assigned  for  the 
benefit  of  his  creditors,  presentment  should  be  made  to  his  trustee  or 
assignee. 

209.  Where    Should    Presentment    Be    Made. — Presentment    for 
acceptance  should  be  made  either  at  the  drawee's  office  or  at  his 
domicile.     Sometimes  the  draft  is  drawn  payable  at  a  certain  place, 
but  even  in  this  case  it  should  be  presented  for  acceptance  at  the 
domicile  or  office,  for  the  place  of  payment  is  immaterial  until  after 
acceptance.     If  he  has  removed,  diligent  inquiry  should  be  made  to 
ascertain  his  new  domicile  or  place  of  business,  and  presentment 
should  be  made  there.     If  he  cannot  be  found,  or  has  absconded, 
the  bill  should  be  treated  as  dishonored. 

210.  When   Should  Presentment  Be   Made. — Under  this  head  it 
will  be  proper  to  consider,  (1)  the  time  of  day,  and  (2)  the  period  of 
time  within  which  presentment  for  acceptance  should  be  made.     It 


84  NEGOTIABLE   INSTRUMENTS. 

should  be  made  within  the  usual  business  hours,  and  except  in  caBe 
of  a  bank,  these  usually  extend  until  bed-time.  It  matters  not  when 
it  be  made,  provided  some  authorized  person  be  seen.  But  if  made 
at  an  unreasonable  hour,  and  no  answer  be  given,  it  is  a  nullity. 
What  might  be  a  reasonable  time  for  one  class  of  business  would  not 
be  for  another. 

211.  Presentment  within  a  Reasonable  Time. — The  bill  should  be 
presented  within  a  reasonable  time  after  its  receipt,  and  unless  it  is, 
the  drawer  will  be  discharged,  even  though  he  has  suffered  no  damage 
by  the  delay.     What  is  a  reasonable  time  must  be  determined  from 
the  facts  of  each  case.     A  more  definite  rule  cannot  be  laid  down. 
Great  latitude  will  be  given  when  the  bill  goes  into  circulation,  and 
each  holder  retains  it  only  a  short  time.     The  facilities  for  communi- 
cation between  the  parties  will  also  be  considered.    A  delay  of  twenty- 
one  days  to  forward  sight  drafts  received  at  Detroit  and  drawn  on 
Chicago,  was  held  by  the  couri  to  be  too  long.     It  should  not  be  pre- 
sented on  a  holiday. 

212.  Excuses  for  Delay  in  Presentment. — There  are  some  reason- 
able excuses  such  as  sickness,  inevitable  accidents,  war,  etc.,   that 
will  excuse  delay.     But  they  must  be  beyond  the  holder's  control. 
Presentment  is  also  excused  when  the  drawee  is  dead  though  it  may 
be  presented  to  the  personal  representative.     It  is  also  excused  if  the 
drawee  has  absconded  or  does  not  have  capacity  to  contract. 

213.  How  a  Bill  Should  Be  Presented. — The  holder  should  make  an 
actual  exhibit  of  the  bill  to  the  drawee  or  his  agent,  and  request 
acceptance.     The  drawee  can  insist  on  writing  his  acceptance  on  the 
face  of  the  bill,  and  this  he  cannot  do  unless  it  be  actually  presented. 
The  drawee   has  the  right  to  hold  the  bill  for  twenty-four  hours  to 
examine  his  account  with  the  drawer,  and  determine  whether  he  will 
accept  the  bill  or  not.     If  he  neglect  or  refuse  to  return  the  bill  it 
can,  by  the  statutes  of  some  states,  be  considered  as  accepted. 

214.  Incompetent   Drawee. — The  drawer's  implied  contract  with 
the  payee  is  that  the  drawee  is  competent  to  accept.     If  therefore, 
the  holder  finds  on  presentment  that  the  drawee  is  incompetent,  for 
instance,  is  an  infant,  an  idiot,  or  lunatic,  he  may  protest  the  bill 
at  once,  even  though  the  drawee  is  willing  to  accept. 

215.  Qualified  Acceptance. — Any  form  of  acceptance  that  intro- 
duces a  new  condition  into  the  instrument,  or  that  varies  in  any  way 


PRESENTMENT  FOR  ACCEPTANCE.  85 

its  tenor,  is  called  a  "qualified  acceptance.  "  The  holder  can  insist 
on  an  unconditional  acceptance  or  none,  indeed,  if  he  accept  a  quali- 
fied acceptance  he  thereby  releases  the  drawer  from  all  liability. 
According  to  the  general  rule  of  decisions,  a  draft  may  be  accepted 
payable  at  a  particular  bank  in  the  city  where  the  drawee  lives,  and 
it  will  not  be  such  a  conditional  acceptance  as  will  release  the  drawer, 
but  the  drawee  should  not  be  permitted  to  make  it  payable  outside 
of  the  city  where  he  lives  or  it  will  release  the  drawer  and  endorsers. 
75  Ga  S3.  (See  form,  sec.  205.) 

216.  What   Acceptance  Admits. — By  the  act  of    acceptance  the 
drawee  admits  the  signature  of  the  drawer,  and  he  cannot  afterwards 
deny  it,  even  though  the  draft  prove  to  have  been  forged.     It  admits 
that  he  has  funds  of  the  drawer's  in  his  hands,  and  also  that  the 
drawer  is  competent  to  contract.     But  it  does  not  admit  that  the 
body  of  the  draft  has  not  been  altered  since  it  left  the  drawer's  hands. 
It  also  admits  the  capacity  of  the  payee  to  endorse. 

217.  Proceedings   for  Non- Acceptance. — If  the  drawee  refuse  or 
neglect   to   accept   the   draft  when  a  proper  presentation  has  been 
made,  or   when   presentation   is   excused,  the   bill  is   said  to  be  dis- 
honored, and  notice  should  be  immediately  sent  to  all  who  are  con- 
ditionally liable.     This  includes  all  endorsers  and  the  drawer.     If 
the  bill  be  a  foreign  one,  it   should  be  protested,  and  then  notices 
should  be  sent.     If  the  draft  is  by  its  terms  due  a  certain  number  of 
days  from  date,  while  it  need  not  be  presented  for  acceptance,  yet  it 
is  the  holder's  privilege  to  do  so,  and  if  acceptance  be  refused,  notice 
should  be  sent  as  before  described,  and  suit  can  be  instituted  against 
the  drawer  and  prior  endorsers  at  once. 

This  doctrine  of  notice  applies  only  to  drawers  and  endorsers  of 
negotiable  instruments,  and  the  rule  need  not  be  observed  in  case  of 
non-negotiable  paper.  It  is  regarded  as  part  of  the  drawer  and 
endorser's  contracts,  that  they  will  only  be  liable  in  case  of  proper 
demand  and  notice. 

FORM  OF  ACCEPTANCE  OF  DRAFT, 

PAYABLE  "AFTER  DATE,"  To  MAKE  PAYABLE  AT  BANK, 

ACCEPTED.  ACCEPTED. 

JOHN  DOE.  August.  15,  1901. 

Payable  at 

IF  PAYABLE  "AFTER  SIGHT,"  Merchants  National  Bank. 

ACCEPTED.  JOHN  DOE. 
Aug.  15,  1901. 
JOHN  DOE. 


86  NEGOTIABLE    INSTRUMENTS. 


CHAPTER  XXI. 
PRESENTMENT  FOR  PAYMENT. 

218.  Why  Necessary. — The  acceptor  of  a  bill  and  the  maker  of  a 
note  engage  absolutely  to  pay  the  paper  on  the  day  of  its  maturity. 
No  presentment  is  necessary  in  order  to  charge  them.     Being  uncon- 
ditional  debtors   it  is  their  business  to  seek  the  holder  at  maturity 
and  pay  him.     But  the  engagement  of  the  drawer  and  endorser  of  a 
bill,  and  the  endorser  of  a  note,  is  conditioned  that  proper  present- 
ment be  made  to  the  one  primarily  liable.     It  is,  then,  for  the  pur- 
pose  of  charging  those   who  are   secondarily  liable  that  presentment 
for  payment  should  be  made.     When  a  draft  is  once  accepted  the 
drawer  and  endorsers  are  in  exactly  the  same  position  as  the  endors- 
ers on  a  note,  hence,  whatever  is  said  on  the  subject  of  presentment 
for  payment  applies  equally  well  to  that  of  notes,  accepted  drafts,  or 
drafts  due  at  a  certain  time. 

219.  By  Whom  Should  Bills  Be  Presented  for  Payment. — Payment 
may  safely  be  made  to  any  one  who  appears  by  the  paper  itself  or 
its  endorsements  to  be  the  holder.     But  mere  possession  of  a  note  or 
bill  is  not,  aside  from  its  endorsements,  evidence  of  the  right  to  receive 
payment.     In  this  respect  it  will  be  noticed,  that  the  rule  of  present- 
ment for  acceptance  differs  from  this.     It  has  been  repeatedly  decided 
that  where  a  paper  fell  accidentally  into  the  hands  of  persons  who, 
without  authority,  presented  it  for  payment,  which  was  refused,  and 
who  thereupon  gave  notice  to  the  endorsers,  the  notice  inured  to  the. 
benefit  of  the  rightful  holder.     If  the  holder  die  before  the  maturity 
of  the  paper,  the  presentment  should  be  made  by  his  personal  repre- 
sentative, and  if  done  within  a  reasonable  time  after  his  appointment, 
it  will  be  sufficient  to  charge  the  drawer  or  endorsers. 

220.  To  Whom  Should  Bills  Be  Presented  for  Payment.— Present- 
ment should  be  made  to  the  acceptor  or  maker,  or  his  legally  author- 
ized agent.     If  the  acceptor  or  maker  be  dead  it  should  be  presented 
to  his  personal  representative,  if  one  be  appointed.     If  there  be  no 


PRESENTMENT   FOB    PAYMENT.  87 

personal  representative  appointed,  presentment  should  be  made  at 
the  dwelling  house  of  the  deceased,  but  if  the  paper  is  payable  at  a 
particular  place,  it  should  be  presented  there.  If  the  paper  be  joint, 
presentment  should  be  made  to  both  debtors,  and  if  they  reside  far 
apart  due  diligence  only  is  required  to  reach  the  second  as  soon  after 
maturity  as  possible. 

221.  On  What  Day  Should  Bills  Be  Presented  for  Payment.— Pre- 
sentment should  bo  made  on  the  very  day  of  maturity,  provided  it  is 
possible.     If  made  before  it  is  a  nullity.     If  made  after,  the  burden 
of  proof  lies  on  the  holder  to  show  that  he  had  a  valid  excuse  for  the 
delay.     In  order  to  hold  the  drawer  of  a  check,  the  holder  should 
present   it   within  twenty-four  hours   of  his   receipt   of  it.     Each 
endorsee  may  hold  it  twenty-four  hours,  and  still  hold  his  endorser, 
but  if  all  parties  are  in  the  same  city  as  the  bank  on  which  the  check 
is  drawn  it  should  be  presented  on  the  next  business  day  after  its 
issue  or  the  drawer  will  be  released  in  case  of  the  failure  of  the  bank. 

222.  Drafts  Payable  on  Demand. — A  bill  payable  on  demand  is 
payable  immediately  on  presentment,  and  without  grace.     It  is  in 
every  respect  similar  to  a  check,  and  where  the  parties  reside  in  the 
same  place  presentment  should  be  made  at  once  upon  its  receipt,  and 
in  any  case  within  a  very  short  reasonable  time.     A  note  payable  on 
demand,  when  intended  as  a  continuing  security,  may  be  held  longer. 
Many  states  have  statutes  settling  this  question  definitely. 

223.  Holidays. — In  fixing  the  maturity  of  negotiable  paper  the 
question  as  to  what  are  legal  holidays  becomes  important.     Each 
state  has  by  statute  selected  its  own  holidays,  and  reference  must 
always  be  had  to  the  statutes  of  the  particular  state  where  the  ques- 
tion arises.     Christmas  and  Fourth  of  July  are  in  all  states  holidays, 
and  in  many  states  the  Twenty-second  of  February  is  so  considered. 
(See  section  189.) 

224.  At  What  Hour  Should  Bills  be  Presented  for  Payment. —If  the 
paper  is  payable  at  a  bank,  presentment  should  be  made  within  bank- 
ing hours.     If  the  paper  is  not  payable  at  a  bank,  presentment  may 
be  made  at  any  time  before  bed-time,  but  a  presentment  made  at  any 
hour   is   good,  provided   a  competent  person  be  seen,   who  refuses 
payment. 


88  NEGOTIABLE    INSTRUMENTS. 

225.  Where  Bills  Should  Be  Presented  for  Payment. — When  the 
paper  is  payable  generally,  that  is  when  no  place  is  designated,  it 
should  be  presented  at  the  home  of  the  acceptor  or  maker,  or  his 
place  of  business.     If  a  paper  is  payable  at  a  certain  town  it  is  suffi- 
cient if  presented  at  all  the  banking  houses  of  the  town,  provided  the 
acceptor  or  maker  have  no  domicile  in  the  town.     If  the  debtor  has 
abandoned  his  place  of  business  at  the  time  the  paper  matures,  pre- 
sentment should  be  made1  at  his  house.     A  demand  made  of  the 
debtor  on  the  street  is  good,  unless  objected  to  as  an  improper  place. 
At  any  rate,  due  diligence  must  be  made  to  find  the  principal  debtor 
and  present  the  paper  to  him.     If  the  paper  is  made  payable  at  a 
particular  place,  presentment  should  be  made  there. 

226.  How  Should  Bills  Be  Presented  for  Payment. — Presentment 
should  be  made  by  an  actual  exhibition  of  the  paper,  or  at  least  the 
debtor  should  clearly  understand  that  the  instrument  was  ready  to 
be  delivered.     The  presentment  of  a  paper  payable  at  a  certain  bank 
is  good  if  it  is  in  the  bank  at  maturity,  ready  to  be  delivered  up  to 
any  one  who  may  be  entitled  to  it  on  payment  of  the  amount  due. 
No  further  presentment  is  necessary. 

227.  Payment. — If  payment  is  made,  the  drawer  and  endorser  of  a 
bill  and  the  endorser  of  a  note,  are  immediately  relieved.      This 
statement  is  made  on  the  assumption  that  payment  is  made  to  the 
party  entitled  to  it,  or  at  least  is  entitled  to  it  so  far  as  the  paper 
discloses. 

228.  Protest. — When  a  note  or  bill  has  been  dishonored,  the  holder 
requires  some  legal  evidence  of  having  performed  all  the  conditions 
precedent  of  his  contract  with  the  drawer  and  endorsers,  that  he  can 
use  in  case  he  is  obliged  to  bring  suit  against  them.     The  best  evi- 
dence is  a  Protest.     In  case  of  a  foreign  bill  a  protest  is  the  only 
evidence  that  is  allowed,  hence  a  protest  in  this  class  of  paper  is 
absolutely  essential.     Not  so  however,  in  case  of  an  inland  bill,  which 
may  or  may  not  be  protested. 

A  certificate  of  protest  is  required  in  case  of  a  foreign  bill,  in  order 
to  afford  authentic  evidence  of  dishonor  to  the  drawer,  who  from  his 
residence  abroad  would  have  much  difficulty  in  determining  whether 
due  steps  had  been  taken  or  not.  We  therefore  see  that  it  is  for  the 
interest  of  both  parties.  It  obviates  the  attendance  of  witnesses, 
and  preserves  evidence  that  might  otherwise  be  lost  through  deatk. 


PRESENTMENT   FOR   PAYMENT.  89 

State  of  Iowa,  \ 

Lee  County,     )  Be  it  Known,   That  on  this  18th  day  of  July,  in  the 

year  of  our  Lord  one  thousand  nine  hundred  and  one,  I,  Thomas  B.  Camp, 
a  Notary  Public,  duly  commissioned  and  sworn,  and  residing  in  the  City  of 
Keokuk,  in  said  County  and  State,  at  the  request  of  O.  M.  Powers,  went  with 
the  original  draft,  a  copy  of  which  is  hereto  attached,  to  the  office  of  W.  J. 
Frisbee,  and  demanded  payment  thereon,  which  was  refused. 

Whereupon  I,  the  said  Notary,  at  the  request  of  the  aforesaid,  did 
PROTEST,  and  by  these  Presents,  do  Solemnly  Protest,  as  well  against  the 
drawer  of  said  draft  and  the  endorsers  thereof,  as  all  others  whom  it  may  or 
doth  concern,  for  exchange,  re-exchange,  and  all  costs,  charges,  damages, 
and  interest  already  incurred  by  reason  of  the  non-payment  of  the  said 
draft. 

And  I,  the  said  Notary,  do  hereby  certify  that  on  the  same  day  and  year 
above  written,  within  forty-eight  hours  from  the  time  of  such  protest,  due 
notice  of  the  foregoing  Protest  was  put  in  the  Postoffice  at  Keokuk,  Iowa,  as 
follows :  Notice  for  M.  L.  Walker,  Bushnell,  Illinois,  and  notice  for  D.  E. 
Zook,  Chicago,  Illinois.  Each  of  the  above  named  places  being  the  reputed 
place  of  residence  of  the  person  to  whom  this  notice  was  directed. 

In  Testimony  Whereof,  I  have  hereunto  set  my 

(Place  for  Seal. )          hand  and  affixed  my  Official  Seal,  the  day  and  year 
first  above  written.  THOMAS  B.  CAMP, 

Notary  Public. 

CERTIFICATE  OF   PROTEST. 

It  is  the  solemn  protest  of  the  holder  against  any  loss  on  account 
of  non-acceptance  or  non-payment,  and  the  calling  of  the  notary  to 
bear  witness  that  all  due  steps  have  been  taken  to  fix  the  liability  of 
the  drawer  or  endorser.  This  protest,  being  under  the  official  seal  of 
the  notary,  is  recognized  by  air  foreign  courts  in  the  same  manner 
that  our  courts  recognize  them. 

The  notary  should  take  the  note,  and  presenting  it  to  the  acceptor 
or  maker,  demand  payment.  As  soon  as  demand  has  been  made,  and 
on  the  same  day,  if  the  paper  be  dishonored,  the  notary  makes  a  record 
in  his  book  of  registry,  of  all  the  facts  concerning  the  presentment, 
including  the  date  and  the  amount  of  his  charges.  From  this  record 
the  formal  protest  is  made  out.  It  is  essential  that  the  record 
spoken  of  above  be  made  on  the  very  day  of  the  demand,  for  the 
notary  must  not  trust  his  memory  until  the  next. 

N.  I.,  Sec  266. — When  the  acceptor  has  been  adjudged  a  bankrupt  or  has 
made  an  assignment  for  the  benefit  of  creditors  before  the  bill  matures  the 
holder  may  have  it  protested  for  better  security. 


90  NEGOTIABLE    INSTRUMENTS. 

229.  What  Protest    should    Contain. — The  notarial  certificate  of 
protest  should  contain: 

1.  Time  of  presentment. 

2.  Place  of  presentment. 

3.  Fact  and  manner  of  and  reason  for  presentment. 

4.  Demand  of  payment  or  acceptance. 

5.  Fact  of  dishonor. 

6.  Name  of  party  by  whom  presented. 

7.  Name  of  party  to  whom  presented. 

And  in  reference  to  notice  it  should  state : 

1.  Person  notified. 

2.  Manner  of  notification. 

3.  When  not  served  in  person,  where  and  in  what  man- 

ner notified. 

230.  Notice  should  Contain. — It  was  formerly  thought  necessary  to 
send  to  the  drawer  or  endorsers  a  copy  of  the  protest,  with  the 
notice  of  dishonor,  but  it  is  now  settled  that  only  the  notice  is  neces- 
sary.    But  when  the  trial  comes  on  the  protest  must  be  produced 
when   a   verbatim   copy   of   the   paper   is   usually   attached   to   the 
protest. 

In  case  of  inland  paper,  while  no  protest  is  necessary,  yet  notice 
to  the  drawer  or  endorsers  is  absolutely  so.  This  notice  may  be 
either  verbal  or  written,  but  written  notice  is  preferable.  No  par- 
ticular form  is  necessary.  The  main  object  being  to  inform  the 
party  that  the  paper  has  been  dishonored,  and  that  the  holder 
looks  to  him  for  payment.  This  notice  should  be  sent  to  all  whom 
the  holder  expects  to  hold  liable,  and  if  the  parties  reside  in 
the  same  place,  notice  should  be  served  not  later  than  the  day  follow- 
ing the  day  of  dishonor.  If  they  reside  in  different  places  the  notice 
must  be  sent  by  the  first  mail  after  the  day  of  dishonor.  Notice  sent 
by  the  holder  inures  to  the  benefit  of  all  subsequent  endorsers,  but  in 
order  to  be  safe,  each  endorser  should  notify  all  endorsers  before  him, 
and  for  this  he  is  allowed  one  day  after  he  is  notified. 

231.  Charges  of  the  Notary. — It  is  the  custom  for  the  drawer  or 
endorser  to  pay  the  notary's  charges,  but  they  are  only  a  legal  charge 
where  the  protest  was  required  by  law.     The  custom  is  so  general  to 
pay  them  that  it  may  well  be  questioned  whether  they  could  not  now 
be  collected. 


BILLS   OP   LADING  91 

232.  Waiver. — The  necessity  for  demand,  protest  and  notice  may 
be  waived  by  the  drawer  or  endorser.  This  is  usually  done  in  writ- 
ing on  the  paper  itself.  No  set  form  is  necessary,  provided  the 
intention  be  clear. 

FORM   OF  WAIVER. 

I  hereby  waive  demand,  protest  and  notice  of  non-payment. 

J.  A.  Lyons. 

This  waiver  can  often  be  secured  at  the  time  the  paper  is  bought, 
and  it  is  a  matter  of  prudence  to  secure  it,  especially  when  the  par- 
ties reside  at  a  distance. 


CHAPTER  XXII. 

QUASI  NEGOTIABLE   INSTEUMENTS. 

233.  Explanation. — Quasi  negotiable  instruments  include  all  that 
class  of  written  contracts,   that,  while  not  accorded  the  full  priv- 
ileges  of  negotiable  paper,  yet  neverthless   enjoy   many  of  them. 
They  occupy  a  kind  of  middle  ground  between  negotiable  paper  and 
the  ordinary  contract. 

BILLS  OF  LADING. 

234.  Definition. — A  bill  of  lading  is  a  written  acknowledgment  by 
the  representative  of  a  common  carrier  that  he  has  received  the  goods 
therein  described,  to  be  carried  and  delivered  upon  the  terms  stated, 
to  the  person  therein  specified.     It  is  both  a  receipt  and  a  contract 
and  in  so  far  as  it  is  a  receipt  it  may  like  all  receipts  be  explained  or 
denied  by  parol  evidence.     This  is  so  even  when  it  has  passed  into 
the  hands  of  a  bona  fide  holder.      In  this  respect  it  lacks  much  of 
being  a  negotiable  paper. 

235.  Explanation. — The  idea  of  making  bills  of  lading  negotiable 
has  evidently  arisen  from  the  use  to  which  they  are  put.     This  may 
be  well  illustrated  by  the  following: — 

Clark  purchases  a  bill  of  goods  from  Evans  in  a  distant  city  and 
orders  them  sent  by  a  certain  line  of  railway.  Evans  sends  them  as 
directed,  getting  a  bill  of  lading  which  he  sends  to  Clark  by  mail. 
Before  the  goods  arrive  Clark  finds  a  customer  for  them.  He  makes 


92  NEGOTIABLE    INSTKUMENTS. 

the  best  delivery  of  the  goods  possible  under  the  circumstances  by 
endorsing  and  delivering  the  bill  of  lading.  From  this  it  is  but  a 
step  to  the  negotiable  paper.  The  bill  of  lading  when  endorsed  passes 
the  title  to  the  property. 

236.  Effect  on  Stoppage  in  Transitu. — In  the  illustration  used  in 
sec.  235,  if  Clark  bought  the  goods  on  credit  and  should  become 
insolvent  while  they  are  en  route ,  Evans  would  have  the  right  to 
notify  the  carrier  to  withhold  delivery  from  Clark.     He  could  do  this 
even  if  Clark  had  received  a  bill  of  lading  but  he  could  not  do  so  if 
Clark  had  previously  negotiated  it  to  a  bona  fide  holder  for  value. 
In  this  respect  it  resembles  a  negotiable  instrument.     (See  sec.  306.) 

237.  How  Used,  etc. — A  bill  of  lading  for  goods  sent  as  per  order  and 
a  draft  for  the  purchase  price  may  be  sent  together  by  the  consignor  to 
the  consignee.     In  this  case  the  draft  must  be  honored  or  the  goods 
cannot  be  retained,  for  the  consignee  gets  no  title  to  them.     Or  the 
consignor  may  ship  the  goods  to  his  own  order,  draw  a  draft  on  the 
vendee  for  the  price,  pin  the  draft  and  bill  of  lading  together  and 
deliver  them  both  to  an  endorsee,  usually  his  bank,  for  value.     This 
keeps  the  possession  of  the  goods  from  the  vendee  until  the  draft  is 
honored  when  the  bill  of  lading  will  be  properly  endorsed  and   deliv- 
ered to  him,  thus  enabling  him  to  secure  the  goods  from  the  carrier. 
This  is  practically  sending  goods  by  freight  C.  0.  D. 

i 

238.  Who  May  Transfer,  etc. — Only  the  consignee  can  pass  legal 
title  to  the  goods  by  an  endorsement  of  the  bill  of  lading.     The 
consignor  is  not  the  proper  person  to  endorse  unless  he  also  be  con- 
signee  or  it  be  made  to  his  order. 

239.  How  Endorsed,  etc. — A  bill  of  lading  may  be  endorsed  by  any 
of  the  modes  of  endorsing  negotiable  paper.     It  may  be  endorsed 
with  conditions  and  all  subsequent  endorsees  take  it  subject  to  the 
conditions.     Even  the  carrier  must  observe  that  the  condition  is 
performed. 

Not  being  strictly  negotiable  instruments  one  who  endorses  them 
does  not  incur  the  liability  of  an  endorser.     101  U.  S.  557. 

240.  Title,  etc. — Unlike  negotiable  paper  no  better  title  can  be 
given  the  endorsee  of  a  bill  of  lading  than  the  endorser  had.     As  a 
result  of  this  if  a  bill  endorsed  in  blank  be  lost  or  stolen  or  obtained 


WAREHOUSE    RECEIPTS. 


93 


by  fraud  the  thief  or  finder  could  not  confer  a  good  title  upon  even 
an  innocent  purchaser  for  value.  29  Minn.  95  U.  S.  92,  51  Pacific 
Rep.  461. 

WAREHOUSE  RECEIPTS. 

241.  What  Are. — When  goods  of  any  kind  are  delivered  to  a  ware- 
houseman for  storage,  a  warehouse  receipt  is  given.  No  set  form  is 
required,  hence  they  vary  in  details  yet  the  object  is  always  the 
same.  We  shall  learn  in  the  subject  of  Bailments  that  the  liability 
of  a  warehouseman  is  fixed  by  the  common  law  independent  of  receipt. 
But  the  liability  is  now  quite  generally  modified  by  statute.  Like  a 
bill  of  lading  a  warehouse  receipt  is  both  a  receipt  and  a  contract. 


^^^••*- •*-•<*  .O.,0.,<»..fcA.«.  .«»-.«--«. 


,  ®®!yi  &.  d@* 

»,. ^!fJL^ /,j 

Cor  . 


?'--     •  Lbs..?°.-.- 


'WV  WV  WWV 


WAREHOUSE  RECEIPT. 


242.  How  Used,  etc.  —  The  instrument  becomes  of  interest  in  a 
commercial  sense  in  the  same  manner  as  a  bill  of  lading  by  being  the 
means  of  effecting  a  delivery  of  personal  property  not  in  the  seller's 
possession.  This  is  well  illustrated  by  the  grain  business.  In  large 
cities,  elevators  are  erected  for  the  storing  of  grain  for  a  fee.  A  car- 
load is  sent  to  a  certain  elevator  by  the  commission  merchant  and  a 
warehouse  receipt  is  delivered  for  it.  The  grain  is  thrown  in  with 
other  grain  of  its  kind  and  quality  and  no  pretense  is  made  of  re-de- 
livering the  identical  grain.  These  receipts  when  sold  are  endorsed 
and  delivered  to  the  buyer.  While  an  endorsement  of  this  kind  will 
give  to  the  endorsee  the  right  to  claim  the  amount  cf  goods  repre- 
sented in  the  receipt,  yet  independent  of  a  statutory  regulation,  such 
an  instrument  is  not  fully  negotiable. 


94 


NEGOTIABLE   INSTRUMENTS. 


LETTERS  OF  CREDIT. 

243.  Explanation. — A  letter  of  credit  is  used  when  persons  are 
traveling  abroad  in  the  following  manner :  A,  the  tourist,  deposits 
with  his  home  banker  the  amount  of  money  which  he  thinks  he  may 


Nt 


K* 


/M        •//  /    ,         ,  /  ,  / 

tettei  waP  te  M&teiUfcf"  fo  ,-uoee  #v 


Martin  Beem,- 


/  /      s       /  /  s        ^ 

Satttt  we  #e0  to  <wen  a  cteatt  wtm  /u 


et 


as 


amtttnf  &  Aat</  wt  we  coca  <?/  m& 
/  / 


#/  2?<?ndc>n.  mteiJw-a  mtitm 
/  / 


en 
nttmet  c 


#f 


* 


ate  So  #e  jfiatat 


f         f 


t 


500- 


January  1st, 


LETTER  OF  CREDIT. 


COUPON    BONDS — PRACTICAL   BEVIEW.  95 

need  while  abroad.  For  this  the  banker  gives  him  a  letter  of  credit 
directed  to  his  foreign  bankers.  Against  this  letter  A  may  draw  at 
such  times  and  in  such  amounts  as  he  may  need,  up  to  the  amount  of 
the  letter,  calling  upon  any  foreign  banker  mentioned  in  the  letter. 
Had  his  banker  drawn  on  any  one  of  the  foreign  bankers  for  the 
whole  amount  of  the  deposit  this  would  have  been  a  bill  of  exchange 
and  of  course  fully  negotiable.  Although  transferrable  by  endorse- 
ment they  are  usually  treated  by  the  courts  the  same  as  a  non-nego- 
tiable contract. 

COUPON  BONDS. 

244.  History. — It  has  been  said  that  the  manifest  disposition  of 
the  present  age  to  swell  the  list  of  negotiable  instruments  cannot  be 
better  illustrated  than  by  the  history  of  coupon  bonds.  This  was  a 
kind  of  instrument  but  little  known  forty  years  ago  but  now  they  are 
much  used  by  both  corporations  and  individuals.  It  is  now  well 
settled  that  coupon  bonds  of  a  corporation  if  laivfully  issued  are  com- 
mercial securities  and  so  far  negotiable  that  a  bona  fide  holder  pur- 
chasing them  before  maturity  will  take  them  free  and  clear  of  any 
defenses  existing  in  the  hands  of  the  original  holder.  These  instru- 
ments are  nearly  always  payable  "to  bearer"  and  are  passed  by  deliv- 
ery. For  this  reason  the  law  is  not  yet  settled  as  to  what  extent  the 
holder  shall  be  protected  who  takes  them  as  bearer,  instead  of  as 
endorsee,  and  in  this  respect  they  cannot  yet  be  said  to  be  fully  nego- 
tiable. The  coupons  are  transferrable  in  the  same  manner  as  the 
bond  itself,  and  are  independent  of  it. 

PRACTICAL   REVIEW. 

I.  A  gives  his  note  to  B  payable  in  wheat.     C  innocently  purchases  the 
note  from  B  for  value  before  maturity,   and  in  the  usual  course  of  business, 
but  at  maturity  A  refuses  payment,  claiming  that  the  paper  was  secured  with- 
out consideration.       Can  C  collect  it  from  A? 

II.  A  secures  B's  note  without  consideration  and  endorses  it  before  matur- 
ity, and  for  value  to  C,  who  has  knowledge  of  the  lack  of  consideration. 
Can  C  collect  it  from  B? 

III.  In  the  above  case,  suppose  C  purchased  the  paper  innocently,  and 
then  transferred  it  to  D,  who  had  knowledge  of  the  lack  of  consideration 
between  A  and  B.     Could  D  collect  it  from  B? 

IV.  What  would  be  your  answer  to  No.  3,  provided  the  sale  from  C  to 
D  was  after  maturity? 

V.  A  playfully  writes  his  name  on  a  blank  paper  and  hands  it  to  B.     B 
fills  out  a  promissory  note  above  it  and  at  once  sells  it  to  C,  who  is  innocent 
of  the  transaction.     Can  C  collect  it  from  A? 

VI.  A  owing  B  $100  writes  and  signs  a  promissory  note  for  that  amount, 


.  96  NEGOTIABLE    INSTRUMENTS. 

payable  to  B  or  bearer,  intending  to  deliver  it  next  day.  A  locks  the  paper 
in  his  safe,  but  in  the  night  a  burglar  breaks  open  the  safe,  gets  the  note  and 
sells  it  to  C,  an  innocent  purchaser,  for  value  and  before  maturity.  C,  after 
maturity,  sells  it  to  D.  Could  any  of  these  parties  collect  the  note  from  A? 
If  so,  which  ones? 

VII.  A  sells  a  bill  of  goods  to  B  for  81,000,  for  which  B  endorses  to  A 
C's  note,  payable  at  the  First  National  Bank,  of  Chicago.  At  maturity  C  is 
insolvent.  What  steps  must  A  take  to  hold  B? 

VIII.  Suppose  that  A  draws  a  draft  on  B,  in  favor  of  C ;  but  B  has  no 
funds  in  hand  belonging  to  A.  What  steps  must  C  take  to  charge  A? 

IX.  A's  name  is  forged  to  a  check,  which  gets  into  the  hands  of  an  inno- 
cent purchaser,  B,  to  whom  A's  bank  pays  it.     On  discovery  of  the  forgery 
can  the  bank  recover  the  amount  from  B? 

X.  Suppose  a  note  reads:  I,  J.  S.  Lee,  president  of  the  E.  &  M.  Ry.  Co., 
promise  to  pay,  etc.,  and  is  signed  J.  S.  Lee,  pres't  E.  &  M.  Ry.  Co.,  whose 
note  is  it? 

XI.  A,  in  consideration  of  B's  promise  of  forbearance  to  prosecute  him 
criminally,  gives  his  negotiable  note  to  B.     B  endorses  it  to  C,  who  takes  it 
before  maturity,  for  value,  without  notice.     C  endorses  it  after  maturity  to 
D   who  endorses  it  for  value  to  B.     Could  any  of  these  persons,  while  hold- 
ing it,  have  enforced  it  against  A,  and  if  so,  which  ones? 

XII.  Write  a  negotiable  promissory  note  for  $250,  at  three  months,  and 
state  the   day  of  the  month  when  the  same  will  mature.     Also  a  draft  for 
same  amount  and  time,  and  give  the  technical  names  of  all  the  parties. 

XIII.  A  makes  his  note  to  B's  order,  and  before  delivery  C  signs  his 
name  on  the  back.     B  endorses  it  over  to  D.     What  is  C's  liability? 

XIV.  A  forges  the  name  of  B  as  drawer  of  a  draft  payable  to  himself,  at 
ten  days'  sight.     The  drawee  accepts  and  the  bill  passes  by  endorsement  to 
C,    an   innocent  holder,    for  value,   and  before  maturity.     What  are  the 
rights  if  any,  of  each  holder  against  the  acceptor? 

XV.  A  note  payable  "to  order"   was  endorsed  by  A  to  B,  "without 
recourse."     B  endorses  in  full  to  C.     The  note  proved  to  be  a  forgery,  and 
the  maker  refused  payment.     Can  C  collect  from  B?    If  so  what  steps  must 
he  take?    Can  he  collect  from  A?    Why? 

XVI.  A  gives  his  negotiable  note  to  B  for  $475.     B  alters  the  amount  so 
that  it  calls  for  $575,  and  endorses  the  paper  in  full  to  C  for  value,  before 
maturity,  C   knowing   nothing  of  the  alteration.     Can   C  collect  the  $475 
from  A?     What  is  the  liability  of  A?    Are  there  any  circumstances  under 
which  he  would  be  liable  for  the  $575?    If  so,  what  are  they? 

XVII.  A  gives  B  his  note  payable  "to  order,"  and  B  endorses  it  "Pay  C 
only."    Can  C  transfer  the  paper  again  by  endorsement? 

XVIII.  Suppose  the  same  conditions  to  exist  as  in  No.  17,  only  B's  endorse- 
ment reads  "Pay  C. "     Can  C  transfer  the  paper  by  a  further  endorsement? 

XIX.  Give  the  facts  of  a  case  in  which  A,  in  his  own  name,  would  have 
the  right  to  sue  B,  though  they  never  had  any  dealings  with  each  other,  and 
B  does  not  even  know  of  the  existence  of  A. 

XX.  A  gives  B  his  non-negotiable  note,  which  B  transfers  to  C  by  an 
endorsement  in  full.     What  is  the  liability  of  A,  and  in  case  B  owes  A  on 
account,  can  C  collect  the  note  from  A? 

XXI.  In  the  above  case  what  steps  would  C  have  to  take  in  order  to 
charge  B  in  the  event  of  A's  insolvency? 

XXII.  On  the  18th  of  August  A  gave  B  his  check  in  payment  of  a  debt. 
B  presents  the  check  at  the  bank  on  the  20th,  but  the  bank  has  failed,  clos- 
ing its  doors  at  the  close  of  business  hours  on  the  19th.     On  whom  will  the 
loss  fall,  and  why? 

XXIII.  In  the  above  case,  suppose  that  on  the  19th  B  endorsed  the  check 


PRACTICAL    REVIEW.  92- 

to  C,  who  goes  on  the  20th  to  present  it,  but  finds  the  doors  closed,  as  did  B. 
On  whom  will  the  loss  fall? 

XXIV.  A  bought  goods  of  B  on  credit,  and  at  the  expiration  of  the 
credit  endorsed  over  C's  note  for  the  amount.     B  does  not  present  the  note 
for  payment  when  due,  but  sues  A.     Will  he  get  judgment?    Why? 

XXV.  In  the  above  case,  if  B  presents  the  note  for  payment,  and  C  is 
insolvent,  can  B  then  collect  his  bill  from  A?    Has  he  any  recourse  to  A  at 
all,  and  if  so,  on  what? 

XXVI.  A  has  a  good  defense  against  B  to  his  note  made  to  B's  order. 
Before  maturity,  to  pay  an  old  debt  of  his  own,  B  assigns  the  note  to  C,  who 
takes  it  without  knowledge  of  A's  defence.     Can  C  recover  on  the  note? 

XXVII.  A  drew  his  check  in  favor  of  B  for  $100.     B  endorsed  it  over  to 
C,  who  raised  it  to  $190.     On  presentation  at  the  bank  it  was  paid.     Can  the 
bank  recover  from  C,  and  if  so,  how  much?    Are  there  any  circumstances 
under  which  A  or  B  would  be  liable? 

XXVIII.  A  gave  his  note  to  B  at  60  days.     After  the  note  was  given  B 
was  adjudged  a  lunatic,  and  a  conservator  appointed  for  him.     B,  however, 
still  retained  the  note  and  sold  it  to  C  for  value.     C  endorsed  it  without 
recourse  to  D,  who  held  it  at  maturity.     What  is  C's  liability? 

XXIX.  A  engaged  B  to  make  a  large  purchase  of  corn  for  him,  and  left 
with  him  for  that  purpose  a  blank  promissory  note  signed.     B  did  not  make 
the  purchase,  but  filled  out  the  note  for  a  large  amount  and  endorsed  it  over 
to  C   for  value   before  maturity,  C   knowing  nothing  of  B's  bad  faith.     C 
endorses  it  for  value  to  D,  who  knew  of  the  origin  of  the  paper.     Can  D  col- 
lect it? 

XXX.  B  sends  his  collector  to  A  for  a  settlement  of  his  account.    A  gave 
him  his  check  payable  to  B  or  bearer,  but  on  his  return  the  collector  lost  the 
check.     Can  B  stop  payment  of  the  check  by  notifying  the  bank? 

XXXI.  A,  a  minor,  was  indebted  to  B.     He  gave  in  payment  his  note, 
which  B  endorsed  in  full  to  C.     Is  A  liable  to  C?    Is  B  liable? 

XXXII.  In  the  above  case  suppose  B  had  endorsed  without  recourse. 
Would  he  then  be  liable? 

XXXIII.  A  purchased  from  B  a  bill  of  goods  to  the  amount  of  $200.     A 
gave  him,  without  endorsement,  C's  note  payable  to  bearer  for  $200.     Sup- 
pose C  is  a  minor;  (2),  Suppose  C's  signature    be  forged;   (3),  Suppose  C 
prove  to  be  insolvent  is  A  liable  in  any  case? 

XXXIV.  A  draft  on  B  payable  to  C  and  purporting  to  be  drawn  by  A 
was  presented  to  B  and  he  accepted  it.     B  afterward  learned  that  A's  signa- 
ture was  forged  and  when  the  draft  was  presented  for  payment  by  D,  an 
innocent  endorsee,  B  refused  to  pay  it.     What  are  the  rights  of  the  different 
parties? 

XXXV.  A  note  is  payable  to  L.  M.  Swift  and  he  wishes  to  transfer  it  to 
C.  M.  Miller  without    becoming  responsible   for  its  payment.     Write  his 
endorsement. 

XXXVI.  Suppose  he  wished  to  endorse  it  so  it  would  not  be  further 
negotiable,  how  could  he  do  it? 

XXXVII.  A.   C.   Rogers  is  the  holder  of  a  negotiable  note.     Write  an 
assignment  of  this  note  to  Robinson  &  Co. 

XXXVIII.  What  is  the  legal  effect  of  this  assignment? 

XXXIX.  A  note  payable  to  order  was  stolen  from  the  owner  and  his 
endorsement    forged  thereon.     After    passing  through  several  subsequent 
holders'  hands  the  owner  discovered  the  note  in  a  bank.     What  are  his 
rights  as  against  the  bank,  can  he  secure  the  possession  of  the  note  and  if  so 
what  is  the  name  of  the  action  he  must  bring? 

XL.     A,  when    presenting   a   negotiable  promissory  note  inserted    the 
words  "presentment,  demand,  notice  and  protest  waived."    At  maturity  the 


-98  NEGOTIABLE    INSTRUMENTS. 

note  was  not  paid,  in  fact  was  not  even  presented.     Is  this  endorser  liable 
nevertheless,  and  why? 

XLI.  A  gives  his  note  to  B  payable  at  Union  National  Bank.  B  presents 
the  note  there  at  maturity.  Is  the  bank  authorized  to  pay  it  and  deduct  the 
amount  from  A's  account. 


PRACTICAL  CASES. 
No.  1. 


This  note  was  written  on  a  blank  across  the  end  of  which  was  printed 
"Wallis  Iron  Co."  It  was  supposed  to  be  a  company  note  and  was  sold  and 
endorsed  by  H.  Swift  &  Co.  Not  being  paid  at  maturity  the  endorsee 
brought  suit  against  Wallis  and  Smith  individually  and  the  court  decided  it 
was  an  individual  and  not  a  corporate  note.  150  N.  Y.  455.  162  III.  241. 

No.  2. 


This  note  was  endorsed 

When  taken  to  the  bank  by  the  Mineral  Co.  for  discount  C.  B.  Warren's 
name  was  not  on  the  note  and  the  bank  suggested  that  his  signature  be 
procured,  which  was  done.  Not  being  paid  at  maturity  Fuit  was  brought  on 
the  note,  but  the  court  decided  that  the  procuration  of  Warren's  signature 
as  a  joint  maker  so  altered  the  contract  as  to  release  Jones  and  the  endorsers. 
90  Ind.  515. 


PBACTICAL   CASES. 


99 


No.  3. 


An  administrator  or  executor  who  makes,  accepts  or  endorses  negotiable 
paper  is  personally  liable  thereon  although  he  add  to  his  signature  the  title 
of  his  office.  30  S.  E.  Rep.  331.  57  Ind.  2G9.  52  III.  342.  132  .Mass.  285.  52 
Minn.  1, 


No.  4. 


This  note  was  endorsed  in  blank  by  B.  W.  Spangler  and  negotiated.     By 

20  N.  Y. 


such  an  endorsement  what  does  Spangler  guarantee? 
226.     38  Iowa  329.     22  Kan.  157. 

How  can  he  avoid  a  portion  of  this  liability? 

How  can  he  avoid  it  all? 


19  Vt.  203. 


100 


NEGOTIABLE   INSTRUMENTS 


No.  5. 


><^  c/2 


This  note  was  endorsed  "Ed.  Rogers."  It  is  a  corporate  note  drawn  by  its 
president  in  his  own  favor.  The  court  decided  that  this  was  sufficient  to 
put  the  purchaser  on  his  guard  and  that  it  was  not  negotiable. 


No.  6. 


If  one  of  several  notes  given  in  the  same  trade  is  past  due  and  this  is 
known  to  a  buyer  then  those  not  due  are  non  negotiable  and  are  open 
to  the  defenses  of  the  maker.  42  8.  W.  Rep.  1055.  4  Allen  (Mass.)  5G2.  57 
Maine  35S. 


PRACTICAL   CASES. 


101 


No.  7. 


^ 


Ellis  Bros,  discounted  this  draft  at  the  First  National  Bank  on  the  strength 
of  the  following  written  guaranty : 

New  York,  Dec.  29,  1899. 

Messrs.  Ellis  Bros. : — Any  draft  you  may  draw  on  A.  Fitzgerald  of  this  city 
we  guarantee  to  be  paid  at  maturity. 

JOHNSON  &  WHEELER. 

The  draft  was  not  paid  and  the  bank  sued  on  the  guaranty.  The  court 
held  it  to  be  a  personal  guaranty  and  not  assignable.  93  N.  Y.  S73.  38 
Jl/ass.  142.  43  N.J.  125. 

It  would  seem  to  be  a  safe  rule  not  to  purchase  a  negotiable  paper  relying 
on  a  guaranty  of  it. 


No.  8. 


On  the  back  of  this  instrument  appeared  the  followin 
"I  hereby  transfer  my  right,  title  _and  interest  in  an 
to  L.  Mitchell. 


to  the  within  note 

J.  F.  FISH." 

per  and 


This  assignment  it  was  held  destroyed  the  negotiability  of  the 
Fish  could  not  be  held  as  an  endorser.     An  endorsement  should  have  been 
used  instead  of  an  assignment.     39  Mich.  171.     71  Mo.  G27.    126  Pa.  194.    101 
U.  S.  68.     119  .Mass.  757.     40  Atl.  Rep.  128. 


102 


NEGOTIABLE    INSTRUMENTS. 


No,  9. 


This  note  is  non-negotiable  in  a  number  of  States  by  reason  of  the  agree- 
ment to  pay  attorney's  fees.  40  Ail.  Rep.  (Maine)  128.  68  Mich.  287.  34 
Me.  9G.  84  Pa.  State  409.  G3  Mo.  33.  53  TFis.  599.  27  Minn.  240. 

The  rule  is  otherwise  in  some  States,  including  Illinois  and  Indiana. 

The  N.  I.  law  makes  such  paper  negotiable. 


No.  10. 


This  paper  was  endorsed,  E.  H.  Bonnell. 

Shaw,  the  maker,  wishing  to  secure  Kitt  against  loss  on  the  paper,  gave 
him  a  mortgage  on  property  worth  at  least  one-third  of  the  amount  of  the 
note.  The  court  held  that  this  mortgage  inured  to  the  benefit  of  all  the 
sureties  alike.  46  8.  W.  Rep.  291.  62  Tex.  141. 


PRACTICAL   CASES. 


103 


No.  11. 


This  draft  is  not  negotiable  because  drawn  on  a  special  fund.  25  N.  Y. 
239.  75  N.  Y.  370. 

If  not  paid  at  maturity  what  steps  must  be  taken  by  the  holder  to  charge 
Kellogg,  he  having  endorsed  it  in  blank  and  negotiated  it? 


No.  12. 


Endorsed,  Francis  Neagle,  Wm.  O.  Brown. 

This  draft  was  forwarded  to  a  N.  Y.  bank  for  collection.  It  permitted  it 
to  be  accepted  payable  in  N.  Y.  instead  of  Hoboken,  N.  J..  This  released 
the  drawer  and  endorsers.  19  N.  Y.  480.  11  O.  State  38. 


104 


NEGOTIABLE   INSTRUMENTS. 
No.  13. 


J.  C.  Martin  Lumber  Co.,  by  E.  L.  Martin,  Treas. 

This  note  was  transferred  by  the  above  endorsement  to  a  N.  Y.  bank. 
Suit  was  brought  on  it  against  the  maker  who  had  a  defense  as  against  the 
Lumber  Co.  The  Supreme  Court  of  Minn,  decided  that  it  was  not  negotia- 
ble because  payable  in  New  York  or  Chicago  exchange  which  was  not  money. 
69  N.  W.  Rep.  1148.  44  Pa.  454.  18  TFis.  481.  4  Jlfass.  245.  64  N.  <7.  381. 


REVIEW  QUESTIONS. 

1.  What  is  a  negotiable  paper?  2.  What  is  the  difference  betweei  nego- 
tiability and  transferability?  8.  What  are  the  necessary  element  ov  lego- 
tiable  paper?  4.  What  are  the  proper  conditions  of  transfer?  5.  W*io  may 
be  parties  to  negotiable  paper?  6.  Is  a  note  or  order  payable  in  a  specific 
chattel  negotiable  in  your  state?  7.  What  are  negotiable  words?  8.  What 
is  meant  by  saying  that  a  negotiable  paper  must  be  payable  absolutei., .' 
9.  What  was  the  first  negotiable  paper?  10.  What  papers  are  now  negotia- 
ble at  common  law?  11.  What  is  a  draft?  12.  Explain  how  a  draft  is  used. 
13.  Draw  a  draft  from  memory.  14.  How  many  parties  are  there  to  a  draft? 
15.  How  are  parties  to  negotiable  paper  divided?  16.  Give  the  technical 
names  of  the  parties  to  a  draft.  17.  Has  the  holder  of  a  draft  a  right  of 
action  against  the  drawer?  18.  What  is  meant  by  accepting  a  draft? 

19.  What  is  a  joint  note  and  how  does  it  differ  from  a  joint  and  several  note? 

20.  What  is  an  accommodation  note,  and  can  it  be  collected?    21.  Are  there 
any  peculiar  words  necessary  to  make  paper  negotiable  in  your  state? 
22.  What  is  a  judgment  note,  and  of  what  advantage  is  it?    23.  What  is  a 
check?    24.  Who  can  stop  payment  on  a  check?    25.  Explain  the  different 
methods  of  keeping  accounts  with  banks.     26.  What  is  a  post  dated  check? 
27.  What  is  a  certified  check?    28.  Why  should  a  check  never  be  drawn 
payable  to  bearer?    29.  How  does  a  check  operate  as  a  receipt?    30.  What  is 
a  certificate  of  deposit?    31.  What  is  meant  by  transferring  a  paper   "for 
value"?    32.  What    are  the    objects  of    endorsement?    33.  Where  should 
endorsements  be  made?    34.  Describe  the  common  forms  of  endorsements. 
35.  What  is  the  endorser's  contract?    36.  What  is  the  contract  of  one  who 
transfers  a  negotiable  paper  without  endorsement?    37.     What  is  the  liabil- 
ity in  your  state  of  one  who  endorses  before  the  payee?    38.  What  drafts 
must  be  presented  for  acceptance?    39.  Why?    40.  What  is  the  effect  of 
acceptance?    41.  Explain  fully  how,  when,  and  where,  presentment  should 
be  made  for  acceptance.     42.  What  does  the  acceptor  admit?     43.  What 


REVIEW  QUESTIONS.  105 

steps  should  be  taken  if  acceptance  be  refused?  44.  Why  is  it  necessary  to 
present  paper  for  payment?  45.  Explain  fully  how,  when,  and  where,  pre- 
sentment for  payment  should  be  made.  46.  What  is  a  protest,  and  by  whom 
should  it  be  made?  47.  To  whom  should  notices  be  sent?  48.  What  is  a 
quasi  negotiable  instrument?  49.  What  is  a  bill  of  lading?  50.  How  does 
it  resemble  a  negotiable  instrument,  and  in  what  respects  does  it  differ? 
51.  How  is  a  bill  of  lading  used?  52.  How  should  a  bill  of  lading  be 
endorsed?  53.  What  is  a  warehouse  receipt?  54.  Explain  its  use  55.  What 
is  a  letter  of  credit?  56.  How  is  it  used?  57.  What  is  a  coupon  bond? 
58.  Is  it  a  common  form  of  paper? 


106  GUARANTY   AND    SURETYSHIP. 


GUARANTY  AND  SURETYSHIP. 


CHAPTER  XXIII. 

245.  Definition. — A  guarantee  is  a  promise  to  answer  for  the  pay- 
ment of  some  debt,  or  the  performance  of  some  duty,  in  case  of  the 
failure  of  another  who  is  in  the  first  instance  liable  for  such  payment 
or  performance.     It  is  a  kind  of  suretyship  as  is  also  the  contract  of 
endorsement.     A  surety  is  generally  a  co-maker,  that  is  he  signs  the 
instrument  with  the  maker,  or  adds  the  word  surety  to  his  name  to 
indicate  the  capacity  in  which  he  binds  himself. 

A  talks  with  his  banker  about  the  loan  of  $1,000.  The  bank  agrees  to  lend 
him  the  money  if  he  will  give  it  the  joint  note  of  himself  and  B.  They  may 
sign  the  note  as  joint  makers  but  as  to  the  bank  B  is  only  a  surety. 

246.  Liability  of  Surety. — The  surety  is  absolutely  liable  as  soon  as 
default  is  made,  and  no  demand  upon  the  principal  or  notice  of  his 
default  is  necessary.     It  is  the  surety's  duty  to  seek  the  creditor  at 
maturity  and  see  that  the  debt  is  paid. 

247.  Guarantor's    Contract. — A    guarantor    either    signs    another 
paper  entirely  from  that  signed  by  his  principal,  or  signs  the  same 
paper,  but  in  such  a  way  as  to  make  his  a  contract  to  pay,  under  cer- 
tain conditions,  the  debt  of  another.     A  surety  makes  the  principal's 
debt  his  debt.     A  guarantor  cannot  make  himself  a  co-maker. 

248.  Guarantor's  Liability. — A  guarantor's  liability  is  less  stringent 
than  that  of  a  surety.     Unless  demand  is  made  upon  the  principal 
within  a  reasonable  time,  and  notice  given  in  case  of  default,  the 
guarantor  is  discharged  to  the  extent  that  he  may  be  damaged  by 
the  delay.     If  in  the  meantime  the  principal  has  become  insolvent,  so 
that  the  guarantor  cannot  have  recourse  to  him,  he  cannot  be  held. 
In  this  respect  the  contract  of  guaranty  is  more  onerous  than  that  of 
endorsement,  for  an  endorser  is  absolutely  discharged  without  refer- 
ence to  his  loss,  which  is  conclusively  presumed.     From  this  we  see 


GUARANTY   AND    SURETYSHIP. 


107 


that  a  guarantor's  liability  is  secondary  and  collateral,  and  not  like  a 
surety's,  which  is  primary  and  direct. 

249.  In  Writing,  etc. — A  contract  of  guaranty  being  a  contract  to 
answer  for  the  debt  or  default  of  another,  must,  according  to  the 
Statute  of  Frauds,  be  in  writing.     It  may,  and  frequently  is,  on  a 
separate  paper  from  that  of  the  principal  contract,  which  it  guaran- 
tees.    In  the  case  of  notes  it  is  often  written  on  the  back.     If  the 
guaranty  is  to  pay  one's  own  debt,  it  need  not  be  in  writing.     This 
was  held  to  be  so  in  a  case  where  a  third  person's  note  was  transferred 
in  payment  of  a  horse,  with  a  verbal  guaranty,  because  it  was  in 
reality  a  promise  to  pay  the  amount  unless  the  third  person  paid  it 
for  Win. 

250.  Consideration. — If  the  contract  of  guaranty  is  made  at  the 
same  time  as  the  principal  contract  which  it  insures,  the  same  con- 
sideration will  do  for  both,  but  if  it  be  made  at  a  different  date,  a  new 
consideration  is  required.     (See  sec.  69.) 

Some  States1  have  held  that  under  the  Statute  of  Frauds  not  only 
the  promise  but  the  consideration  of  a  guaranty  as  well  must  be 
expressed  in  writing.  But  in  the  majority  of  States  the  considera- 
tion need  not  be  mentioned,  and  where  it  is  necessary  the  words 
"value  received"  are  usually  sufficient.  It  would,  in  fact,  be  safer 
to  use  these  words  in  every  case. 

251.  Kinds,  etc. — Guaranties  are  variously  divided,  the  following 
being  the  most  common  and  important  classes: 

a.  General. 
1.  As  to  Guarantee. 

6.  Special. 


KINDS. 


2.  As  to  Subject  Matter. 


3.  As  to  Amount. 


a.  For  Payment. 


r 

'    b. 


b.  For  Collection. 
a.  Limited. 
Unlimited. 


4,  As  to  Time. 


a.  Temporary. 
6.  Continuing. 

A  special  guaranty  is  one  directed  to  a  particular  person.     A  gen- 
eral guaranty  is  directed  to  whomsoever  may  accept  the  offer  made. 


1  Alabama,  Georgia,  Minnesota,  New  York. 


108  GUARANTY    AND   SURETYSHIP. 

Being  in  the  nature  of  a  proposition,  it  must  be  accepted  before  it  is 
binding,  and  the  guarantee  must  notify  the  guarantor.  This  is  neces- 
sary that  he  may  know  to  whom  he  is  liable,  and  for  what  amount, 
that  he  may  take  proper  steps  to  protect  himself  against  loss. 

In  cases  of  all  such  guaranties  it  is  safer  to  notify  the  guarantor  of 
its  acceptance. 

Temple,  Tex.,  Sept.  1,  1901. 

To  any  one  who  shall  accept  and  retain  this  letter  of  guaranty,  I  will  guar- 
antee the  payment  of  any  bill  of  goods  which  may  be  sold  the  bearer,  G.  W. 
Broivn,  to  an  amount  not  exceeding  four  hundred  dollars.  This  should  be 
considered  for  one  transaction  only. 

N.  Y.  Blair. 

GENERAL  GUARANTY. 

Ross  Grove,  III,  Aug.  16  1901. 
A.  C.  McClurg  &  Co.,  Chicago,  111. 

Gentlemen :  If  you  will  sell  the  bearer,  James  Allen,  a  bill  of  goods  on 
ninety  days'  credit,  I  will  cheerfully  guarantee  the  payment  thereof  to  an 
amount  not  exceeding  one  thousand  dollars. 

Joseph  B.  Lyons. 

SPECIAL  AND   LIMITED  GUARANTY. 

252.  For  Payment. — A  holder  of  a  negotiable  paper  writes  on  the 
back  thereof: 

For  value  received  I  hereby  guarantee  the  payment  of  the  within  note. 

A. 

This  is  an  absolute  guaranty,  for  the  guarantor  is  liable  immediately 
on  the  default  of  the  debtor.  But  he  is  entitled,  according  to  the 
weight  of  authority,  to  demand  and  notice  within  a  reasonable  time. 

253.  For  Collection. — If  the  guaranty  be  as  follows:  ' 

For  value  received  I  hereby  guarantee  the  collection  of  the  within  note. 

A. 
or 

For  value  received  I  warrant  this  note  good.  A. 

it  is  a  guaranty  for  collection.     He  does  not  absolutely  guarantee  the 
payment  of  the  note,  but  that  the  debtor  can  be  made  to  pay  it. 

Therefore,  before  A  can  be  compelled  to  pay,  it  will  be  necessary 
for  the  holder  to  show  that  the  debtor  cannot  be  made  to  pay  it. 
This  can  only  be  properly  tested  by  bringing  suit  against  the  debtor, 
and  a  failure  after  due  and  reasonable  diligence  to  enforce  its  pay- 
ment. If  the  principal  debtor  were  notoriously  insolvent,  so  that 
suit  would  be  in  vain,  or  had  moved  to  a  foreign  state,  the  action  need 
not  be  brought,  but  the  holder  can  proceed  at  once  against  the  guar- 


GUARANTY   AND   SURETYSHIP.  109 

antor.  The  statutes  of  some  States  have  practically  abolished  the 
rules  in  regard  to  endorsers,  and  have  made  those  "guarantors  for 
collection"  who  would  otherwise  be  endorsers.  In  these  States,  to 
save  the  annoyance  of  bringing  suit,  it  is  often  required  of  the  trans- 
ferrer  of  a  note  that  he  also  guarantee  the  payment  thereof. 

254.  As  to  Amount,  etc. — A  guaranty  may  be  for  a  certain  amount, 
in  which  case  it  is  said  to  be  limited,  or  it  may  be  for  an  unlimited 
amount. 

255.  As  to  Time,  etc. — A  guaranty  may  be  either  temporary,  that 
is,  limited  to  a  single  transaction,  or  continuing.     Such  a  guaranty 
applies  to  successive  transactions.     It  is  often  extremely  difficult  to 
determine  whether  the  contract  be  a  temporary  or  continuing  one,  and 
therefore  it  is  best  to  have  the  instrument  itself  state  plainly  which  is 
intended.     If  it  contains  such  expressions  as  "from  time  to  time,"  or 
"at  any  time,"  or  "for  any  debt,  etc.,"  it  is  usually  construed  as  a 
continuing  guaranty.     A  continuing  guaranty  will  cover  not  only 
separate  bills,  but  if  they  are  paid  and  others  bought  it  will  cover  any 
balance  due  within  the  limit  named  until  extinguished. 

Chicago,  III,  July  18,  1001. 
J.  W.  Butler  Paper  Co.,  City. 

Gentlemen  :  For  all  goods  that  you  may  sell  E.  P.  Farr,  upon  the  usual 
terms  of  credit,  I  will  for  value  received,  guarantee  the  payment  in  an  amount 
not  exceeding  one  thousand  dollars.  You  are  at  liberty  to  consider  this  letter 
a  Continuing  Guaranty  until  further  notice.  H.  Templeton. 

CONTINUING  GUARANTY. 

256.  Guaranty  Not  Negotiable. — In  many  States  guaranties  are 
held  to  be  non-negotiable.     It  would  seem,  therefore,  to  be  an  act  of 
prudence  to  rely  but  little  on  an  assigned  guaranty. 

B  held  A's  note,  which  he  sold  to  C.  In  selling  it  he  endorsed  it  in  blank 
and  under  his  endorsement  he  wrote:  I  guarantee  the  payment  of  semi- 
annual interest  on  this  note  as  well  as  the  principal,  B.  A  subsequent 
holder  of  the  note  sued  B  on  this  guaranty  but  the  court  held  that  it  was 
personal  to  the  person  to  whom  given. 


110  GUARANTY   AND    SURETYSHIP. 


CHAPTER  XXIV. 
GUARANTY  AND   SURETYSHIP— CONTINUED. 

257.  Surety's  Rights. — Mere  delay  on  the  part  of  the  creditor  will 
not  release  the  surety.     In  the  absence  of  statutory  provisions  he 
cannot  by  notice  compel  the  creditor  to  proceed  against  the  debtor, 
but  (1)  he  may  pay  the  debt  and  then  bring  his  action  against  the 
debtor;  or  (2)  he  can  bring  an  action  in  equity  to  compel  the  debtor 
to  pay  the  creditor;  (3)  if  he  pays  the  debt  and  is  a  co-surety,  he  has 
the  right  of  contribution;   and  (4)  he  has  the  right  of  subrogation. 
The  surety  is  not  compelled  to  await  a  suit,  but  may  pay  the  debt  at 
any  time  after  default.     And  he  can  recover  in  addition  from  the 
debtor  any  interest  or  costs  he  may  have  been  compelled  to  pay. 

258.  Contribution. — When  there  are  two  or  more  co-sureties  or 
co-guarantors,  and  one  pays  the  debt,  he  has  the  right  to  compel  the 
others  to  contribute  their  share,  and  may  bring  an  action  against 
them  for  it. 

A,  B  and  C  jointly  become  surety  for  D.  When  the  debt  is  due  D  fails  to 
pay  it,  and  the  creditor  demands  payment  of  C,  who  pays  it.  C  now  has  the 
right  of  contribution  against  A  and  B  to  compel  them  each  to  pay  one-third. 

This  obligation  arises  out  of  an  implied  promise  amongst  co-sureties 
to  share  the  burdens  of  loss  equally. 

259.  Subrogation. — When  a  surety  pays  the  creditor  he  has  a  right 
to  insist  on  all  the  securities  which  the  creditor  was  entitled  to,  for 
the  payment  of  the  debt.     If  the  creditor  had  secured  a  judgment 
against  the  debtor,  the  surety  is  now  entitled  to  the  benefits  of  it. 
This  is  called  the  right  of  subrogation. 

260.  How  Surety  Is  Discharged. — Of  course  a  surety  may  be  dis- 
charged from  liability  by  paying  the  obligation,  but  there  are  numer- 


GUARANTY   AND    SURETYSHIP.  Ill 

ous  ways  he  may  be  discharged  without  payment.     The  most  impor- 
tant are : 

I.  Fraud  practiced  on  the  surety. 
II.  Diversion  from  the  agreed  purpose. 

III.  Alteration. 

IV.  Release. 

V.  Extending  time  to  Principal. 
VI.  Parting  with  security. 
VII.  Death  of  a  joint  surety  or  joint  guarantor. 

261.  Fraud  Practiced  on  the  Surety. — When  one    is  induced  to 
become  a  surety,  or,  for  that  matter,  a  drawer  or  endorser  for  another, 
and  there  is  a  misrepresentation  or  concealment  of  a  material  fact, 
which  if  known  to  him  would  have  prevented  his  entering  upon  the 
contract,  it  is  void  as  to  all  parties  having  knowledge  of  the  fraud. 

A,  securing  a  position  of  trust  with  a  corporation,  induced  B  to  go  on  his 
bond  for  the  faithful  performance  of  his  duties  for  one  year.  During  the 
year  A  was  found  to  have  embezzled,  but  nothing  was  done  about  it,  and  the 
company,  relying  on  his  promise  to  make  it  good,  took  his  note.  The  next 
year  B,  in  ignorance  of  A's  former  misdeeds,  again  became  his  surety.  In  a 
short  time  A  was  again  an  embezzler,  when  the  company  notified  B  of  their 
intention  to  hold  him  responsible  on  his  bond.  B  is  not  liable,  for  he  has 
been  imposed  on. 

262.  Diversion. — Where  a  bill  is  drawn  or  accepted,  or  a  note  made 
or  endorsed  for  accommodation,  with  an  agreement  that  it  is  to  be 
used  for  a  particular  purpose,  any  diversion  in  its  use  discharges  the 
accommodation  party  as  to  all  who  have  notice  of  the  diversion.     Any 
one  taking  such  a  paper  with  a  knowledge  of  its  diversion,  is  not  a  bcna 
fide  holder. 

263.  Alteration. — Any  material  alteration  in  the  original  or  prin- 
cipal contract  will,  we  have  found,  absolutely  release  the  principal 
debtor,  and  if  the  principal  debtor  be  released  so  also  is  the  surety. 
This  is  making  a  different  contract,  one  which  he  never  guaranteed. 
In  like  manner,  if  there  be  any  material  alterations,  such  as  erasures 
or  interlineations  in  the  contract  of  guaranty,  it  releases  the  surety. 

By  the  N.  I.  law  an  innocent  holder  of  an  altered  instrument  may  enforce 
it  according  to  its  original  tenor. 

264.  Extending  Time  to  Principal. — The    creditor  preserves  his 
right  against  the  debtor  intact,  not  for  himself  alone,  but  for  the 
benefit  of  the  surety  as  well.     When  he  relaxes  his  hold  upon  the 
debtor,  he  impairs  the  hold  the  surety  would  have  when  substituted 
(subrogated)  in  his  place.    It  must  be  understood  that  a  mere  forbear- 
ance to  bring  an  action  against  the  debtor  will  not  release  the  surety. 


112  GUARANTY   AND    SURETYSHIP. 

If  this  were  the  case,  it  would  mean  that  the  creditor  must  proceed 
against  the  debtor  immediately  upon  his  default;  but  such  is  not  the 
law.  The  forbearance  which  releases  the  surety  must  be  granted  in 
pursuance  of  a  binding  legal  contract  to  that  effect.  The  distinction 
may  be  shown  as  follows :  A  owes  B  on  a  note  for  which  C  is  surety. 
The  note  being  due,  A  goes  to  B  and  requests  that  he  give  him  thirty 
days  more  in  which  to  pay.  To  this  B  assents.  Notwithstanding 
this  arrangement,  there  is  nothing  to  prevent  B  from  suing  A  at 
once,  for  to  make  this  a  binding  contract  there  must  be  a  considera- 
tion. B  has  not  made  a  valid  contract  to  extend  the  time,  and  he 
being  thus  in  a  position  to  proceed  against  A  at  any  moment,  C  is 
not  deprived  of  any  of  his  rights.  As  to  whether  the  payment  of 
interest  is  a  sufficient  consideration  to  support  a  promise  to  extend  the 
time,  authorities  differ,  but  certainly  the  payment  of  a  greater  rate,  or 
paying  it  in  advance,  will  be  sufficient.  Should  the  creditor  and 
lebtor  wish  to  make  a  valid  extension  they  should  first  secure  the 
surety's  assent. 

2,85.  Parting  with  Securities.— Upon  the  payment  of  the  debt  the 
surely  is  entitled  to  all  the  rights,  remedies  and  securities  which  the 
creditor  could  have  enforced.  The  creditor  must,  therefore,  use 
every  care  that  he  do  nothing  to  impair  the  surety's  rights.  He 
must  not  part  with  any  securities  he  may  have  belonging  to  the 
debtor ,  and  if  he  do  so,  the  surety  is  released  to  that  extent.  This 
has  befc-a  held  so  where  the  surety  did  not  even  know  of  the  existence 
of  the  security  at  the  time  of  its  release. 

266.  Beath  of  Joint  Guarantor. — By  the  common  law,  the  death 
of  a  joint  guarantor  releases  his  estate  from  the  obligation.     This 
rule  has  been  changed  by  statute  in  some  States. 

267.  How  Guarantor  Is  Discharged. — A  guarantor  is  discharged  by 
any  act  of  the  creditor  that  would  discharge  a  surety.     All  that  has 
been  said  in  this  connection  in  regard  to  surety  applies  equally  well  to 
guarantors.     Further,  a  guarantor  may  be  discharged  by  failure  to 
make  demand,  and  want  of  notice.     It  would  perhaps  be  speaking 
more  accurately  to  say  that  his  liability  in  this  case  had  never  been 
perfected. 

268.  Endorsers  and  Drawers  Become  Sureties. — When   all    steps 
necessary  to  charge  an  endorser  or  drawer,  including  demand,  protest 
and  notice,  have  been  taken,  his  contract  or  liability  henceforth  is 


PEACTICAL   REVIEW.  113 

that  of  a  surety.     He  may  still  be  released  by  any  of  the  ways  men- 
tioned above,  and  is  governed  in  all  respects  as  are  sureties. 

269.  Surety  Differs  from  Go-maker. — While  the  surety  makes  the 
principal's  debt  his  own,  and  is  not  generally  entitled  to  notice,  yet 
he  may  be  released  by  the  act  of  the  creditor  when  he  would  not  be 
released  if  he  were  a  co-maker.  (See  sec.  260.)  In  the  order  of 
onerous  liability  first  comes  co-maker  and  then  surety,  guarantor  for 
payment,  guarantor  for  collection,  and  lastly  endorser. 

One  who  stands  sponsor  for  the  faithful  performance  of  an  act  or 
service  is  a  guarantor  and  not  a  surety. 

270.  Principal  Debt  Not  Enforceable. — Sometimes  a  guaranty  or 
surety  is  requested,  because  the  principal  debt  it  not  enforceable,  as 
where  a  minor  asks  for  credit,  which  is  granted  if  security  be  given. 
In  such  cases  the  guarantor  or  surety  is  liable  even  though  the  prin- 
cipal debtor  is  not. 

PRACTICAL  REVIEW. 

I.  A,  a  surety,  is  sued.     His  defense  is  that  as  the  principal  failed  to  pay 
the  interest  when  due,  it  was  agreed  between  the  debtor  and  the  creditor  if 
he  (the  debtor)  would  pay  it  the  creditor  would  give  him  six  months  more 
time  on  the  debt.     Is  this  a  good  defense,  and  why? 

II.  A  is  surety  for  B  to  C.     C  also  held  a  mortgage  on  B's  property  to 
secure  the  same  debt.     On  B's  representation  that  he  wished  to  sell  the 
property  C  released  the  mortgage.     How  does  this  affect  A's  position? 

III.  A  being  a  surety  on  a  note  which  was  due  and  unpaid,  was  sued. 
His  defense  was  that  the  maker  of  the  note  was  an  infant.     Is  A  liable? 


REVIEW  QUESTIONS. 

1.  Define  a  contract  of  guaranty.  2.  How  does  a  contract  of  surety  differ 
from  that  of  co-maker?  3.  Distinguish  between  surety  and  guaranty.  4.  Dis- 
tinguish between  guaranty  for  payment  and  for  collection.  5.  Distinguish 
between  guarantor  and  endorser.  6.  What  guaranty  must  by  accepted  and 
guarantor  notified  before  it  is  binding?  7.  Name  the  different  kinds  of  guar- 
anty. 8.  Name  the  surety's  rights.  9.  How  may  a  surety  be  discharged? 
10.  What  is  contribution?  11.  What  is  subrogation?  12.  What  is  an 
endorser's  liability  when  proper  demand  has  been  made  and  notice  given? 
13.  How  will  extension  of  time  to  principal  affect  the  surety?  14.  What 
wHl  be  the  effect  if  the  creditor  reserves  his  rights  against  the  surety? 
15.  What  steps  must  be  taken  to  charge  a  surety?  16.  What  to  charge  a 
guarantor  for  payment?  17.  What  to  charge  a  guarantor  for  collection? 
18.  What  to  charge  an  endorser? 


114  INTEREST   AND   USURY. 


INTEREST  AND  USURY. 


CHAPTER   XXV. 

271.  Definition. — Interest  is  the  use  of  money,  but  the  ordinary 
acceptation  of  the  term  is  the  compensation  paid  for  the  use  of  money. 
It  is  usually  stated  in  the  contract  as  a  certain  per  cent,  meaning  a 
certain  per  centum  of  the  principal. 

272.  Legal  Rate. — The  States  have  all  legislated  on  the  subject, 
and  each  has  established  a  rate  to  be  used  when  the  parties  have 
failed  to  name  a  rate,  and  also  in  cases  where  the  law  implies  a  promise 
to  pay  interest.     This  rate  is  called  the  legal  rate.     It  is  not  always 
the  highest  rate  that  may  be  agreed  upon  between  the  parties,  for 
most  States  have  fixed  a  maximum  rate  that  may  be  agreed  upon. 
If  there  is  a  maximum  rate  it  is  always  as  high  or  higher  than  the 
legal  rate,  and  the  parties  may  agree  upon  any  rate  up  to,  but  not 
exceeding,  the  maximum. 

273.  What  Law  Governs,  etc. — The  rate  of  interest  which  a  con- 
tract bears,  and  also  the  question  whether  it  bears  interest  at  all  or 
not,  are  both  determined  by  the  law  of  the  place  where  it  is  expressly 
or  impliedly  to  be  paid.     If  no  place  of  payment  be  specified,  it  will 
bear  interest  according  to  the  law  of  the  place  where  made.     If  a  bill 
be  drawn  in  one  State  for  a  debt  payable  there,  upon  a  person  in 
another  State,  if  it  is  not  accepted,  and  an  action  is  brought  against 
the  drawer,  the  plaintiff  is  entitled  to  the  rate  of  interest  of  the  State 
where  it  was  drawn. 

274.  On  What  Interest  Is  Allowed. — Interest  is  allowed  by  agree- 
ment on  all  forms  of  indebtedness  whose  face  value  is  or  can  be  deter- 
mined.    It  is  allowed  by  implication  on  all  claims  that  are  due  and 
remain  unpaid,  from  the  day  of  their  maturity  until  paid,  and  on  all 
judgments  which  the  courts  have  rendered.     In  all  cases  where  the 


INTEREST   AND    USURY.  115 

rate  is  fixed  by  statute,  or  by  implication,  the  legal  rate  applies.  It 
will  be  seen  that  the  measure  of  damages  for  the  detention  of  money 
is  the  legal  rate  of  interest  for  the  time  of  detention.  If  a  bill  of 
goods  be  sold  for  cash,  and  the  cash  be  not  paid,  interest  may  be  col- 
lected from  the  date  of  sale,  at  the  legal  rate  until  it  is  paid.  If  a 
bill  be  sold  on  a  credit  of  sixty  days,  interest  can  be  collected  at  the 
legal  rate  from  and  after  the  expiration  of  the  sixty  days. 

In  case  of  a  note  payable  on  demand,  interest  begins  on  demand. 

275.  Negotiable  Paper  does  not  bear  interest  until  maturity,  unless 
it  is  so  stated.     But  if  it  says  "with  use"  or  "with  interest,"  then 
the  legal  rate  applies. 

276.  Annual  Interest. — Annual  interest  occupies  a  middle  ground 
between  simple  and  compound.     Interest  is  taken  on  interest  accruing 
directly  from  the  principal,  but  at  simple  interest  instead  of  com- 
pound.    It  is  allowed  in  many  States  by  agreement. 

277.  Compound  Interest. — This  is  interest  upon  interest,  computed 
at  regular  intervals.     It  is  not  usually  favored  by  the  courts,  and  if 
agreed  upon  in  advance  will  not  be  enforced.     If  after  the  interest 
has  become  due,  the  debtor  agrees  to  pay  interest  on  interest  it  will 
be  upheld,  for  it  is  equivalent  to  an  additional  loan  of  that  amount. 
The  rules  for  the  computation  of  interest  in  case  of  partial  payments, 
are  usually  drawn  to  favor  the  debtor  by  avoiding  compound  interest. 

278.  Usury  is  illegal  or  exorbitant  interest.     Any  rate  beyond  the 
maximum  rate  would  be  usurious,  and  hence  void.      The  various 
States  have  established  a  penalty  for  an  agreement  to  accept  usury. 
As  the  rates  vary  in  the  different  States,  a  contract  may  be  usurious 
in  one  and  perfectly  valid  in  another.     As  a  rule,  if  the  obligation  has 
been  paid  the  penalty  does  not  apply,  and  the  debtor  cannot  recover 
it.     All  kinds  of  subterfuges  are  resorted  to  to  avoid  the  penalty  for 
usury.     Sometimes  the  borrower  is  required  to  take  a  small  chattel 
at  an  exorbitant  figure,  and  in  this  way  the  lender  endeavors  to  get 
the  extra  return  on  his  money  over  the  legal  rate.     In  all  such  cases 
the  law  looks  to  the  intent,  and  if  it  seems  to  be  usurious  it  will 
thwart  its  object. 

Where  a  note  executed  in  one  State  is  made  payable  in  another 
under  the  laws  of  which  it  is  not  usurious  while  it  is  usurious  under 
the  laws  of  the  State  where  made,  the  law  of  the  State  of  performance 
will  govern  as  to  usury.  11$  U.  S.  101. 


116 


INTEREST   AND   TJSUKY. 


STATES  AND  TER- 
RITORIES. 

LEGAL 
RATE. 

HIGHEST 
RATE 
ALLOWED. 

PENALTY  FOR  USURY. 

Alabama 

8% 

8% 

Forfeiture  of  all  interest. 

Arizona 

1% 

any  % 

None. 

Arkansas 

Q% 

10% 

Forfeiture  of  principal  and  interest. 

California 

T% 

any  % 

None. 

Colorado 

8% 

any  % 

None. 

Connecticut 

Q% 

Q% 

None. 

Delaware 

Q% 

6  % 

Forfeiture  of  double  amount  of  loan. 

Dist.of  Columbia 

Q% 

10  % 

Forfeiture  of  all  interest. 

Florida 

8% 

10% 

Forfeiture  of  all  interest. 

Georgia 

1% 

8% 

Forfeiture  of  all  interest. 

Idaho 

1% 

12% 

Forfeiture  of  three  times  the  excess  of  interest 

over  18%. 

Illinois 

5% 

1% 

Forfeiture  of  all  interest. 

Indiana 

6% 

8% 

Forfeiture  of  excess  of  interest  over  Q%. 

Iowa 

Q% 

8% 

Forfeiture  of  all  interest  and  costs. 

Kansas 

G% 

10% 

Forfeiture  of  double  the  usury. 

Kentucky 

Q% 

6% 

Forfeiture  of  excess  of  interest. 

Louisiana 

5% 

8% 

Forfeiture  of  all  interest. 

Maine 

Q% 

any  % 

None. 

Maryland 

6% 

6% 

Forfeiture  of  excess  of  interest- 

Massachusetts 

6% 

any  % 

None. 

Michigan 

5% 

7% 

Forfeiture  of  all  interest. 

Minnesota 

6% 

10% 

Forfeiture  of  contract. 

Mississippi 

6% 

10% 

Forfeiture  of  all  interest. 

Missouri 

6% 

8% 

Forfeiture  of  all  interest. 

Montana 

8% 

any  % 

None. 

Nebraska 

1% 

10% 

Forfeiture  of  all  interest  and  costs. 

Nevada 

1% 

any  % 

None. 

New  Hampshire 

6% 

6% 

Forfeiture  of  three  times  the  excess  of  interest. 

New  Jersey 

6% 

6% 

Forfeiture  of  all  interest  and  costs. 

New  Mexico 

6% 

12% 

None. 

New  York 

Q% 

Q% 

Forfeiture  of  principal  and  interest. 

North  Carolina 

6% 

Q% 

Forfeiture  of  double  the  amount  of  interest. 

North  Dakota 

1% 

12  % 

Forfeiture  of  interest. 

Ohio 

6% 

8% 

Forfeiture  of  excess  of  interest  over  8%. 

Oregon 

b% 

10% 

Forfeiture  of  interest,  principal  and  costs. 

Pennsylvania 

6% 

Q% 

Forfeiture  of  excess  of  interest. 

Rhode  Island 

Q% 

any  % 

None. 

South  Carolina 

1% 

8% 

Forfeiture  of  double  the  excess. 

South  Dakota 

1% 

12% 

Forfeiture  of  all  interest. 

Tennessee 

Q% 

Q% 

Forfeiture  of  excess  of  interest. 

Texas 

Q% 

10% 

Forfeiture  of  all  interest. 

Utah 

8% 

any  % 

None. 

Vermont 

Q% 

*7% 

Forfeiture  of  excess  of  interest. 

Virginia 

Q% 

6% 

Forfeiture  of  excess  of  interest  over  8<&. 

Washington 

<o% 

12% 

Forfeiture  of  double  illegal  interest. 

West  Virginia 

6% 

Q% 

Forfeiture  of  excess  of  interest. 

Wisconsin 

Q% 

10% 

Forfeiture  of  all  the  interest. 

Wyoming 

8% 

12% 

Forfeiture  of  interest  and  costs. 

*  Allowed  on  railroad  bonds  only. 


279.  Not  Usurious,  etc. — It  is  not  deemed  usurious  for  the  interest 
to  be  taken  in  advance,  neither  is  it  to  purchase  a  third  person's  note 


PRACTICAL  &EVIEW.  H7 

at  a  great  reduction  from  its  face.  This  is  deemed  to  be  a  chattel  of 
uncertain  value.  The  agreement  to  take  unlawful  interest  must  be 
absolute  and  unconditional.  If  the  agreement  is  that  in  case  the 
project  for  which  the  money  is  loaned  shall  fail,  nothing  is  to  be  paid, 
but  if  the  project  is  successful,  a  high  rate  is  to  be  returned,  such 
interest  is  not  usurious.  If  the  money  is  loaned  at  a  risk,  and  the 
interest  is  to  be  paid  out  of  the  profits  or  not  at  all,  it  is  not  usury. 

280.  Expenses  of  Securing  Loan. — When  the  borrower  pays  a  broker 
a  fee  for  finding  him  a  lender,  this  fee  does  not  make  the  contract 
usurious.     But  if  the  money  really  belongs  to  the  broker,  and  it  is 
not  a  charge  for  his  time  and  expenses,  he  will  be  liable  for  usury. 

281.  Effect. — Independent  of  any  statutory  provision,  money  paid 
voluntarily  on  a  usurious  contract  cannot  be  recovered.     But  many 
States  have  provided  differently. 


PRACTICAL  REVIEW. 

I.  On  July  A  gave  B  his  note  at  60  days,  for  $100,  but  no  mention  is 
made  of  any  interest.     If  the  note  is  paid  at  maturity  what  amount  can  B 
demand? 

II.  In  the  above  case,  if  the  note  is  not  paid  until  October  1  following, 
what  amount  can  B  claim  in  your  State? 

III.  A  being  pressed  for  funds,  borrowed  $500  from  B  and  agreed  to  pay 
him  2  per  cent  a  month  interest.     If  the  note  be  for  six  months,  how  much 
can  he  collect  in  your  State  at  maturity? 

IV.  A,  of  Denver,  borrows  of  B,  of  Chicago,  $1,000,  on  a  note  for  ninety 
days,  payable  at  the  First  National  Bank  of  Chicago.     The  note  bears  interest 
at  12  per  cent  per  annum.     Is  this  usury,  and  if  so,  how  much  can  be  col- 
lected? 


REVIEW  QUESTIONS. 

1.  Define  interest.  2.  Define  "legal  rate."  3.  What  is  meant  by  the 
"maximum  rate?"  4.  What  law  governs  as  to  the  rate?  5.  On  what  is 
interest  allowed  by  implication?  6.  What  is  annual  interest?  7.  What  is 
compound  interest?  8.  What  is  usury?  9.  By  what  rule  of  interest  are  par- 
tial payments  usually  reckoned? 


118  THE  SALE  OF  PERSONAL  PROPERTY. 


THE  SALE  OF  PERSONAL  PROPERTY. 


CHAPTER  XXVI. 

282.  Introduction. — A  sale  of  personal  property  is  of  course  a  con- 
tract, and  is  subject  to  all  the  rules  of  law  governing  contracts.     It 
must  have  the  four  essential  elements  of  all  contracts,  besides  which 
the  Statute  of  Frauds  provides  that  sales  above  a  certain  amount 
must  be  in  writing.     (Sec.  105.) 

283.  Definition. — A  sale  of  personal  property  is  a  present  transfer 
by  mutual  agreement  of  the  absolute  or  general  title  to  certain  per- 
sonal  property  for  a  certain  price.     It  transfers  the  absolute  title  ai 
distinguished  from  that  limited  title  given  in  case  of  loan  or  hire. 

284.  Parties. — The  parties  to  a  sale  are  the  seller  and  buyer,  or  as 
they  are  usually  designated,  vendor  and  vendee  respectively.     As  a 
rule,  those  who  are  competent  to  contract  generally  are  competent 
parties  to  a  sale. 

285.  Assent  to  Contract  and  Price. — The  parties  must  agree  not 
only  the  one  to  sell  and  the  other  to  buy,  but  they  must  agree  upon 
a  price.     The  price  must  be  fixed,  or  easily  ascertainable  by  reference 
to  the  contract.     If  the  contract  does  not  furnish  at  least  the  true 
criterion  of  price,  and  something  yet  remains  to  be  done  between 
buyer  and  seller  to  ascertain  it,  there  is  no  sale.     This  rule  does  not 
prevent  the  fixing  of  the  price  by  implication.     Where  one  goes  into 
a  store,  points  out  an  article  and  says  he  will  take  it,  and  possession 
is  given  immediately,  it  is  a  sale,  for  the  law  implies  the  buyer's 
promise  to  pay  a  reasonable  price  for  it.     The  adequacy  of  the  price 
is  not  necessary  to  the  perfection  of  the  sale,  provided  every  part  of 
the  agreement  is  entered  into  in  good  faith,  and  there  is  an  entire 
absence  of  fraud  in  the  transaction.     The  law  does  not  undertake  to 
make  contracts  for  parties,  but  leaves  them  to  affix  their  own  prices 
to  goods  sold.     The  price  may  be  left  to  a  third  person,  and  in  that 


THE   SALE   OF   PERSONAL   PROPERTY.  119 

case  it  is  sufficiently  certain,  for  there  remains  no  agreement  to  be 
made  on  the  part  of  the  parties. 

286.  Subject  Matter. — This  is  the  property  bought  or  sold.     The 
property  must  have  an  actual  existence,  or  at  least  be  capable  of 
existing.     That  which  is  not  in  existence  when  the  title  passes  can- 
not be  sold,  though  it  has  previously  existed  or  may  come  into  exist- 
ence thereafter.     A  complete  sale  stops  not  short  of  full  execution, 
of  delivery  and  acceptance.     The  subject  matter  need  not,  however, 
actually  be  in  the  possession  of  the  seller. 

287.  That  Which  Has   Ceased  to  Exist. — If  the  thing  existed  at 
one  time,  but  at  the  time  of  agreement  it  has  ceased  to  exist,  the 
sale  is  void,  for  there  is  nothing  for  the  transfer  of  title  to  operate 
upon.     This  would  be  so  with  the  sale  of  goods  in  a  warehouse, 
which  prove  to  have  already  been  burnt  up.     Or  an  animal  which, 
unknown  to  either  party,  was  dead  at  the  time  of  sale.     When  the 
thing  is  only  partially  destroyed,  the  better  opinion  seems  to  be  that 
the  buyer  has  an  option  whether  he  will  take  what  remains,  making 
due  allowance  for  the  part  destroyed,  or  rescind  the  entire  contract. 
The  same  rule  holds  true  when  there  has  been  a  failure  of  title  as  to 
part.     If  there  be  a  failure  of  part,  either  through  loss  or  defect  of 
title,  so  that  the  remainder  is  unfit  for  the  use  intended,  or  that 
which  remains  was  not  within  the  inducement  to  the  purchase,  the 
buyer  may  rescind,  and  recover  any  money  he  may  have  paid. 

288.  Subject  Hatter  Not  Yet  in  Existence. — Formerly  that  which 
was  not  in  existence  at  the  time  of  transfer  could  not  be  subject  mat- 
ter of  a  valid  sale.     But  the  law  has  been  gradually  enlarging  the 
scope  of  what  may  be  legal  subject  matter  of  sale,  and  now  a  poten- 
tial interest  may  be  sold,  but  a  mere  possibility,  coupled  with  no 
interest  whatever,  is  not  sufficient.     Prospective  interests,  as  profits 
of  a  voyage,  future  earnings  on  an  existing  contract,  the  year's  clip 
of  wool  from  a  flock  of  sheep  one  now  owns,  are  suitable  subjects  of 
sale.     Thus  the  milk  from  a  farmer's  cows  for  a  certain  season,  or 
next  season's  crop  from  his  farm,  or  the  future  offspring  of  an  ani- 
mal now  owned  by  the  seller,  are  suitable  subjects  for  sale.     Each  of 
these  contemplates  in  effect  the  sale  of  the  product  of  something 
which  the  seller  already  owns. 

289.  What   Is   Not   Sufficient.— On  the  other  hand  the  profits, 
income  or  increase  of  that  which  is  not  yet  the  seller's  property,  can- 
not be  sold  by  him,  even  though  he  may  contemplate  purchasing  it 


120  THE   SALE   OF   PERSOHAL  PROPERTY. 

Of  this  nature  are  the  crops  of  another's  farm,  the  milk  of  his  cows, 
or  the  wool  of  his  sheep.  It  has  been  decided  that  there  can  be  no 
sale  of  future  wages  outside  of  an  actual  control  of  service  in  force 
at  the  time  of  sale.  Neither  can  there  be  a  sale  by  a  professional 
man  of  all  prospective  fees  to  be  made  by  him  during  a  certain  future 
period.  Here  the  expectation  is  not  founded  upon  a  right  in  actual 
existence. 

290.  Statute  of  Frauds. — It  will  be  recalled  that  one  section  of 
this  famous  statute,  Avhich  we  have  already  considered,  has  direct 
reference  to  the  sale  of  personal  property.     The  effect  of  it  is  to  add 
a  fifth  requisite  to  those  of  an  ordinary  contract.     A  very  few  States1 
have  not  re-enacted  this  section,  and  in  them  sales  of  personal  prop- 
erty are  unaffected.     The  statute  requires  the  contract  of  sale  of 
"goods,  wares  and  merchandise"  for  the  sum  of  fifty  dollars  or  more 
to  be  in  writing  and  signed  by  the  party  to  be  charged.     The  memo- 
randum need  not  be  formal,  indeed  the  word  memorandum  would 
indicate  as  much.     It  may  be  a  writing  which  consistently  imports  a 
sale  contract.     It  may  be  expressed  by  letters,  or  an  acknowledgment 
of  invoice,  or  by  a  telegram.     It  is  not  even  necessary  that  it  pass 
between  the  parties,  but  it  may  be  gathered  from  various  sources 
from  the  writings  of  the  defendant.     It  may  consist  of  his  written 
proposal,  supplemented  by  parol  proof  of  the  plaintiff's  acceptance. 
(Sec.  105.) 

While  most  of  the  States  have  followed  the  English  laAV,  as  to  the 
amount  of  the  sale,  namely  ten  pounds  (fifty  dollars),  yet  a  few  have 
named  a  different  amount  above  which  every  valid  sale  must  be  in 
writing.2 

291.  Who  Must  Sign. — It  will  be  observed  that  the  statute  requires 
the  note  or  memorandum  to  be  signed.     It  should  be  signed  by  both 
buyer  and  seller,  if  both  are  to  be  held,  but  if  signed  by  but  one  only 
he  can  be  held.     A  contract  to  be  binding  ought  to  be  mutual  in 
obligations,  so  that  either  might  sue  the  other  for  noncompliauce 
with  its  provisions,  but  this  seems  to  be  an  exception  to  the  general 
rule.     If  the  memorandum  is  signed  by  but  one  of  the  parties,  he 
can  be  held  at  the  option  of  the  other.     In  Michigan,  however,  it 
has  been  held  that  both  must  sign  it  or  neither  can  be  held. 

1  Alabama,  Arizona,  Delaware,  Illinois,  Kansas,  Ohio. 

*  Maine,  New  Jersey,  Missouri  and  Arkansas  have  fixed  upon  $30.  Florida  and  Iowa 
require  sales  of  any  amount  to  be  in  writing.  lu  New  Hampshire  it  is  $33,  and  in  Ver- 
mont $40. 


THE  SALE   OF   PERSONAL  PROPERTY.  121 

292.  What  the  Memorandum  Must  Contain.—  The  writing,  to 
comply  with  the  statute,  must  show  with  certainty  who  is  buyer  and 
who  is  seller.  That  is,  it  must  show  which  is  buyer  and  which  is 
seller.  It  should  show  what  the  subject  matter  was,  and  if  the  oral 
contract  named  a  price,  it  must  appear,  but  if  no  price  was  named, 
a  reasonable  one  can  be  fixed  by  parol.  The  general  trend  of  deci- 
sions is  to  give  force  and  effect  to  the  memorandum,  if  the  contract 
can  be  ascertained  from  it  at  all.  Sometimes  it  is  desirable  to  frame 
a  more  formal  instrument,  to  comply  with  the  statute.  This  is  called 
a  Bill  of  Sale,  and  in  addition  usually  contains  a  written  warranty. 
It  is  usually  acknowledged  by  a  notary,  the  same  as  a  deed,  and  if  the 
possession  of  the  property  does  not  pass  at  once  it  should  be  recorded. 

A  bill  of  sale,  no  matter  how  it  is  drawn,  if  taken  as  collateral 
security,  or  if  it  is  agreed  that  the  maker  can  have  the  return  of  the 
property  by  complying  with  certain  conditions,  is  a  chattel  mortgage 
and  should  be  recorded  as  such. 


ail  /Ren  b£  EbeSC  presents,  That  O.  M.  Powers,  of  the  City  of 
Chicago,  in  the  County  of  Cook,  and  State  of  Illinois,  party  of  the  first  part, 
for  and  in  consideration  of  the  sum  of  One  Hundred  and  Fifty  Dollars,  law- 
ful money  of  the  United  States  of  America,  to  me  in  hand  paid,  at  or  before 
the  ensealing  and  delivery  of  these  presents,  by  F.  S.  Blair,  of  the  second  part, 
the  receipt  whereof  is  hereby  acknowledged,  has  granted,  bargained,  sold,  and 
delivered,  and,  by  these  presents,  does  grant,  bargain,  sell,  and  deliver,  unto 
the  said  party  of  the  second  part,  all  the  following  goods,  chattels  and  prop- 
erty, to-wit: 

One  Remington  Typewriter,  No;  14678. 

TTO  1bave  JtnD  tO  f)OlO  the  said  goods,  chattels  and  property  unto  the  said 
party  of  the  second  part,  his  heirs,  executors,  administrators,  and  assigns,  to 
and  for  his  own  proper  use  and  behoof,  forever. 

IBflO  the  said  party  of  the  first  part  does  vouch  himself  to  be  the  true  and 
lawful  owner  of  the'said  goods,  chattels  and  property,  and  have  in  himself  full 
power,  good  right,  and  lawful  authority,  to  dispose  of  the  said  goods,  chattels 
and  property,  in  manner  as  aforesaid.  And  he  does,  for  himself,  as  well  as 
for  his  heirs,  executors,  and  administrators,  covenant  and  agree  to  and  with 
the  said  party  of  the  second  part,  to  warrant  and  defend  the  said  goods, 
chattels  and  property  to  the  said  party  of  the  second  part,  his  executors, 
administrators,  and  assigns,  against  the  lawful  claims  and  demands  of  all 
and  every  person  and  persons  whomsoever. 

In  IClttnese  THH  hereof  f  I  have  hereunto  set  my  hand  and  seal,  the  24th 
day  of  July,  in  the  year  one  thousand  nine  hundred  one. 

0.  M.  POWERS.    [SEAL] 
Sealed  and  delivered  in  the  presence  of       I 
L.  MITCHELL.     ) 
BILL  OF  SALE. 


122  THE  SALE  OF  PERSONAL  PROPERTY. 

293.  A  Rule  of  Evidence. — In  most  cases  the  statute  begins:  "No 
action  shall  be  brought  whereby  to  charge,"  etc.,  or,  "No  evidence 
shall  be  introduced    to  charge,"  etc.,  and  the  courts  have  quite 
generally  held  that  the  contract  itself  is  good,  but  that  the  statute 
prevents  the  introduction  of  oral  testimony  to  prove  it.     It  would 
appear  at  first  that  this  is  a  distinction  without  any  practical  differ- 
ence, but  it  will  be  noticed  that  the  writing  need  not  be  made  at  the 
time  of  the  oral  contract,  but  it  is  sufficient  if  made  later.     In  this 
case  the  contract  of  sale  dates  from  the  day  of  the  oral  contract,  and 
not  from  the  day  of  the  writing. 

An  action  was  brought  for  the  price  of  twenty  bales  of  cotton,  sold  by 
oral  contract  while  the  cotton  was  in  the  hands  of  a  warehouseman.  Fifteen 
of  these  bales  were  afterwards  destroyed  by  fire,  after  which  the  buyer  wrote 
the  seller,  acknowledging  the  purchase.  The  loss  was  the  buyer's. 

This  letter  was  a  compliance  with  the  statute,  and  the  sale  dating 
from  the  oral  contract  could  now  be  proven.  Had  the  rule  been  that 
the  contract  was  not  finished  until  the  writing  was  signed  there  could 
have  been  no  sale,  for  at  that  time  a  large  part  of  the  property  was 
not  in  existence. 

294.  Conditional  Sale. — It  is  a  common  practice  with  installment 
houses  to  deliver  the  article  sold  and  take  a  contract  calling  for  the 
payment  of  the  balance  of  the  purchase  price  and  stating  that  until 
such  payment  the  title  in  the  property  shall  remain  in  the  seller. 
Most  States  have  statutes  governing  these  matters,  a  common  pro- 
vision of  which  is  that  such  contracts  must  be  recorded  as  chattel 
mortgages  if  to  be  valid  as  to  third  persons.     (See  sec.  293.) 


DELIVEBY.  123 


CHAPTER  XXVII. 
DELIVERY. 

295.  Delivery.  — This  is  a  duty  imposed  on  the  seller.     It  may  be 
either  an  actual  delivery,  that  is  the  giving  of  the  actual  possession 
to  the  buyer,  or  it  may  be  a  constructive  delivery.     The  common 
acceptation  of  the  term  is  the  manual  transfer  of  the  thing  sold,  but 
legally  it  more  frequently  means  the  transfer  of  property  or  title  in 
the  thing  sold.     It  is  a  transfer  of  right,  whereby  at  a  certain  point 
in  the  transaction  the  property  and  risk  of  ownership  shift  from 
seller  to  buyer.     It  is  important  to  determine  just  when  this  kind  of 
delivery  takes  place,  for  on  its  determination  depends  the  rights  and 
responsibilities  of  ownership. 

296.  Transfer    of   Specific    Chattels. — Specific  'chattels   are  those 
which  are  in  existence,  ascertained  and  appropriated  to  the  contract, 
so  that  the  sale  is  plainly  a  sale  of  those  identical  things  and  no 
others.     Something  may  yet  remain  to  be  done  to  them,  still  those 
identical  things  are  sold.     Of  this  class  is  a  sale  of  a  particular  boat, 
or  of  a  certain  herd  of  cattle,  or  of  all  cattle  in  a  certain  herd  bear- 
ing a  certain  brand,  or  of  all  sacks  of  wheat  in  a  certain  car,  that 
bear  a  certain  mark,  or  of  a  case  of  fruit  on  which  is  placed  the 
buyer's  name,  though  it  is  not  separated  from  the  remainder.     So 
there  may  be  a  sale  of  a  specific  portion  of  goods  in  a  warehouse,  if 
that  portion  is  marked  so  that  it  can  be  distinguished  from  the  mass, 
even  though  there  be  no  separation  or  actual  delivery.     This  rule 
enables  the  seller,  in  case  of  loss,  to  prove  and  the  buyer  to  ascertain 
to  a  certainty,  whether  his  particular  goods  have  been  destroyed  or 
not.     If  nothing  remains  to  be  done  by  the  parties,  and  the  goods 
remain  in  the  possession  of  the  seller,  he  holds  them  as  bailee  and 
not  as  owner.     It  seems  to  be  settled  that  the  property  does  not  rest 
in  the  purchaser  when  nothing  was  said  concerning  payment,  and  no 
arrangement  for  credit  was  made,  until  the  price  is  actually  paid  or 
adjusted;  immediately  upon  such  payment  or  arrangement  for  time, 


124  THE  SALE  OF  PERSONAL  PROPERTY. 

the  ownership  immediately  shifts  to  the  buyer.  Of  course  a  differ- 
ent intention,  or  a  different  custom,  would  govern  in  a  case  of  this 
kind. 

297.  When  Something  Eemains  to  Be  Done. — The  goods  may  be 
chosen  or  set  aside,  or  what  is  the  same  in  effect,  marked,  yet  there 
may  still  remain  something  for  the  seller  to  do  to  them.     It  may  be 
they  are  to  be  weighed,  or  measured,  or  it  may  be  the  duty  of  the 
seller  to  deliver  them  at  the  buyer's  home  or  place  of  business. 
The  query  arises  in  these  cases,  when  does  the  risk  of  ownership 
shift,  at  the  time  of  the  purchase  of  the  goods,  or  when  weighed, 
measured  or  delivered,  as  the  case  may  be.     A  person  enters  a  store 
and  makes  a  selection  of  certain  goods,  for  which  he  pays,  but  which 
are  to  be  delivered  at  the  purchaser's  home.     Before  delivery  the 
store,  including  the  goods  bought,  is  destroyed  by  fire.     On  whom 
is  the  burden  of  loss? 

298.  English  Rule. — Where  anything  remains  to  be  done  to  the 
goods  for  the  purpose  of  ascertaining  the  price,  as  by  weighing, 
measuring,  counting  or  testing  the  goods,  the  performance  of  that 
act  is  a  condition  precedent  to  the  transfer  of  title.     This  is  so  even 
though  the  identical  goods  be  ascertained.     Again,  if,  by  the  agree- 
ment, there  yet  remains  something  to  be  done  by  the  seller,  such  as 
to  deliver  the  goods  at  a  certain  place,  the  title  is  not  presumed  to 
pass  until  the  delivery  has  been  made. 

A  sells  to  B  ten  bolts  of  cloth  at  40  cents  per  yard.  The  cloth  was  set 
aside  and  was  to  be  measured  the  following  clay,  when  B  was  to  pay  the 
price.  A's  goods,  including  this  cloth,  were  attached  by  a  creditor  imme- 
diately after  the  contract.  B  cannot  get  the  cloth,  for  its  ownership  was  in 
A  at  the  time  of  attachment. 

299.  American  Rule.  — While  it  must  be  admitted  that  there  are 
many  American  decisions  to  the  contrary,  yet  the  weight  of  authority 
is  certainly  in  favor  of  the  English  rule.     The  courts  rely  a  great 
deal  upon  the  intention  of  the  parties  in  each  particular  case,  and 
this  has  tended  to  create  some  confusion. 

300.  The  Test,  then,  as  laid  down  by  Chancellor  Kent,  seems  to 
be,  "if  anything  remains  to  be  done  as  between  the  seller  and  the 
buyer,  before  the  goods  are  to  be  delivered,  a  present  right  of  prop- 
erty does  not  attach  in  the  buyer,"  and  any  loss  is  upon  the  seller. 

301.  Delivery  without  Change  of  Possession. — It  could  easily  be 
inferred  from  what  has  been  said  that  an  actual  delivery  of  goods  is 
not  necessary  in  order  to  pass  the  title  to  the  buyer.     If  the  goods 


DELIVERY.  125 

are  set  aside,  or  can  be  accurately  identified,  and  await  the  call  of 
the  buyer,  they  are  constructively  delivered,  and  the  seller  holds 
them  as  bailee.  In  the  absence  of  any  agreement  or  custom  to  the 
contrary,  the  law  presumes  a  delivery  to  be  made  where  the  chattels 
were  when  the  bargain  was  completed.  It  is  in  such  case  not  bind- 
ing on  the  seller  to  search  for  the  buyer.  He  has  done  his  duty 
when  he  stands  ready  to  deliver  on  the  call  of  the  buyer. 

B  purchased  from  A  fifteen  sheep,  which  were  marked  and  paid  for.  B 
was  to  call  for  them  on  the  following  day.  They  were  B's  sheep,  and  A 
holds  them  as  a  bailee  and  not  as  owner.  Should  they  be  killed  through  no 
fault  of  A's  the  loss  would  be  upon  B.  Here  is  a  change  of  ownership  with- 
out change  of  possession. 

302.  Delivery  by  Installments. — If  the  contract  be  silent  as  to  the 
quantity  of  goods  to  be  delivered  at  each  of  the  certain  fixed  periods, 
but  names  a  gross  amount  to  be  delivered  within  the  full  period,  the 
quantity  to  be  delivered  at  each  period  is  left  to  the  option  of  the 
seller. 

303.  Delivery   to   Carrier. — When  goods  are  ordered  as  from  a 
wholesale  merchant  in  a  distant  place,  he  makes  a  proper  delivery  by 
delivering  them  to  the  carrier  in  good  condition,  properly  packed 
and  marked.     Should  a  loss  occur  thereafter  it.  will  be  upon  the 
buyer.     The  seller,  however,  should  follow  the  buyer's  instructions 
as  to  the  route.     If  no  instructions  are  given  as  to  the  line  of  ship- 
ment, the  seller  should  use  reasonable  care  in  selecting  a  suitable 
one. 

304.  A  Sale  That  Defrauds  Third  Persons. — Sometimes  a  sale  is 
made,  and  by  its  terms  the  seller  is  to  retain  possession  of  the  thing 
sold.     This  is  valid  so  far  as  the  parties  themselves  are  concerned, 
but  as  to  third  persons  it  may  not  be.     This  is  the  course  often  pur- 
sued by  persons  in  their  attempt  to  defraud  others.     Being  in  the 
possession  and  owners  of  certain  chattels,  they  will  make  a  secret  sale 
to  a  friend,  but  still  retain  the  possession  of  the  goods.     Others  see- 
ing them  still  in  possession  of  the  goods,  are  induced  thereby  to 
extend  to  them  a  larger  credit,  but  in  attempting  to  enforce  their 
claims  are  informed  that  the  goods  were  long  since  sold  to  another. 
This  is  certainly  a  fraud  on  such  creditors,  and  in  their  behalf  the 
law  will  set  the  sale  aside.     (See  sec.  82.) 

305.  Constructive  Delivery. — It  frequently  happens  in  a  sale  that 
the  thing  sold  is  too  ponderous  to  be  easily  transferred  by  a  manual 
delivery.     In  such  cases  a  constructive  delivery  is  sufficient.     Bulky 


126  THE  SALE  OF  PERSONAL  PBOPEETY. 

goods  in  a  warehouse  may  be  delivered  by  a  delivery  of  the  key  to 
the  warehouse.  The  property  to  logs  may  be  transferred  by  taking 
the  buyer  where  they  are  and  giving  him  access  to  them,  and  so  grain 
in  an  elevator  may  be  transferred  by  delivery  of  a  warehouse  receipt. 

306.  Stoppage  in  Transit. — This  is  a  right  possessed  by  one  who 
has  sold  personal  property  on  credit  to   intercept  them  while  in 
transit,  to  save  himself  from  loss  occasioned  by  the  insolvency  of  the 
buyer.     When  goods  are  ordered  to  be  shipped,  they  are  delivered 
when  in  the  custody  of  the  carrier,  who  is  considered  the  agent  of 
the  buyer  and  not  of  the  seller.     But  the  seller  still  retains  the  right 
of  stoppage  in  transit.     In  order  that  this  right  may  exist,  the  goods 
must  still  be  in  the  hands  of  the  carrier,  and  not  delivered;    the 
buyer  must  owe  for  these  identical  goods,  and  the  buyer  must  be 
insolvent. 

307.  In  Transit. — If  the  goods  have  been  delivered  into  the  actual 
possession  of  the  buyer,  the  right  is  lost.     It  may  also  be  lost,  as  we 
have  previously  remarked  (sec.  236),  by  a  sale  of  the  goods  by  the 
buyer  and  a  delivery  of  them  by  the  transfer  of  the  bill  of  lading. 

308.  The  Debt. — Goods  cannot  be  stopped  for  a  general  balance 
due,  but  the  debt  must  be  for  the  identical  goods.     They  may  be 
stopped  for  a  portion  of  their  cost,  and  so  may  they  also,  if  a  note 
has  been  given  for  them,  for  the  note  may  be  returned  when  the 
original  account  will  stand.     All  the  seller  can  claim  is  the  debt, 
hence  if  this  be  tendered  him  by  the  buyer,  he  must  release  the 
goods. 

309.  The  Insolvency. — If  the  seller  knew  of  the  buyer's  insolvency 
at  the  time  of  the  sale,  his  right  of  stoppage  is  lost.     It  is  not  neces- 
sary for  the  seller  to  await  a  formal  adjudication  of  brankruptcy,  for 
the  very  lapse  of  time  would  defeat  the  object  of  the  remedy.     In 
case  of  uncertainty,  his  interests  demand  that  he  act  promptly. 

310.  Method  of  Exercising  Right. — No  particular  method  is  pre- 
scribed by  law.     The  only  thing  necessary  where  the  right  exists  is 
for  the  seller,  by  any  declaration  or  act  plain  enough  for  the  carrier 
to  understand,  to  countermand  delivery  to  the  buyer.     The  usual 
method  is  to  notify  the  carrier,  forbidding  delivery  and  requiring  the 
goods  to  be  held  for  further  instructions.     The  carrier  is  bound  to 
obey,  for  the  proper  exercise  of  the  right  is  at  the  seller's  peril  and 
not  his. 


DELIVEKT.  127 

A  FORM  OP  NOTICE. 

Aurora,  HI    July  18,  1901. 
To  the  Adams  Express  Co.,  City. 

Gentlemen:  On  the  16th  instant  I  delivered  to  you  three  bicycles,  marked 
and  consigned  to  Charles  Farr,  Galveston,  Texas.  I  have  just  learned  of  cir- 
cumstances that  give  me  the  right  of  stoppage  in  transit.  Please  do  not 
deliver  these  goods,  but  hold  them  for  further  orders.  Daniel  E.  Zook. 

311.  Effect. — The  effect  of  exercising  the  right  of  stoppage  is  not 
to  rescind  the  sale,  hut  to  put  the  seller  in  possession  with  the  rights 
of  an  unpaid  seller  of  goods  sold  for  cash  on  delivery.  The  seller 
may  re-sell  the  goods  upon  notice,  on  the  buyer's  account,  and  for 
any  deficit  he  can  proceed  against  the  buyer  and  in  like  manner  he 
must  account  to  the  buyer  for  any  surplus.  The  right  of  stoppage 
is  paramount  to  that  of  attaching  creditors.  So  if  the  buyer's 
creditors  attach,  the  seller  may  still  exercise  his  right  before  delivery, 
and  the  attachment  yields  to  his  claim. 


CHAPTER  XXVIII. 
SALE  OF  PEKSONAL  PKOPEETY— CONTINUED. 

312.  A  Distinction  should  be  drawn  between  an  absolute  or  com- 
pleted sale  and  an  agreement  to  sell.     The  former  is  an  executed 
while  the  latter  is  an  executory  contract.     If  anything  remains  to  be 
done  or  ascertained  by  the  parties  it  is  an  agreement  to  sell  and  not 
a  completed  sale.     In  a  completed  sale  the  property  in  the  thing  sold 
passes  to  the  purchaser.     In  an  agreement  to  sell  it  remains  with  the 
seller.     The  property  in  the  thing  sold  may  pass  to  the  purchaser, 
though  the  possession  may  remain  in  the  seller. 

313.  Sales  on  Trial. — We  have  already  discussed  in  a  general  way 
conditional  sales,  and  have  seen  that  the  title  does  not  pass  until  all 
conditions  are  complied  with.     The  condition  is  a  condition  pre- 
cedent to  the  passing  of  the  title.     Goods  are  often  sold  to  await  the 
call  of  the  buyer  for  delivery.     Of  this  class  also  are  sales  of  goods 
"on  trial,"  or  "on  approval."     The  object  of  this  is  to  give  the 


128  THE  SALE  OF  PERSONAL  PROPERTY. 

buyer  an  opportunity  to  test  the  qualities  of  the  thing  and  find  it 
satisfactory  before  he  shall  be  bound.  There  is  a  manifest  differ- 
ence between  a  "sale  on  trial"  and  a  sale  "with  privilege  of  return- 
ing." In  one  case  the  property  does  not  pass  until  approval,  and  in 
the  other  it  passes  at  once,  subject  to  the  right  to  rescind.  In  sales 
on  trial  the  buyer  has  an  option  for  any  period  agreed  upon,  but  if 
no  time  was  fixed  then  he  has  a  reasonable  time  in  which  to  decide. 
The  duty  rests  on  the  buyer  to  make  known  his  disapproval,  and  if 
he  remain  silent  beyond  the  stated  time,  or  beyond  a  reasonable  time, 
the  property  is  his,  and  the  sale  becomes  absolute.  If  the  article  is 
unsatisfactory  he  need  not  give  the  seller  the  opportunity  of 
remedying  any  defects.  He  must  take  good  care  of  the  article  while 
in  his  possession  for  trial,  for  it  is  not  his  property.  He  is  in  a  great 
measure  the  sole  judge  as  to  whether  he  wishes  to  retain  it  or  not. 

314.  Sale    of   Goods    to    Arrive. — Goods  expected  to  arrive  from 
abroad  are  often  sold  as  "to  arrive."     The  effect  of  this  is  to  make 
their  arriving  a  condition  precedent  to  the  completed  sale.     Goods 
which  a  person  may  own  on  an  incoming  vessel  may  be  sold,  and 
their  delivery  be  effected  by  a  transfer  of  the  bill  of  lading,  in  which 
case  it  is  an  absolute  and  not  a  conditional  sale.     When  goods  are 
sold  "to  arrive,"  the  conditions  precedent  to  a  sale  are  (1)  that  the 
ship  named  arrive,  and  (2)  that  on  arrival  these  goods  prove  to  be 
aboard.     Unless  the  goods  do  arrive  neither  party  is  bound. 

315.  Sale  by  Sample. — This  is  also  a  conditional  sale.     There  is  a 
condition  that  the  buyer  has  the  right  of  comparing  the  bulk  with 
the  sample,  and  a  condition  that  the  thing  delivered  shall  in  every 
way  answer  the  description  of  the  sample.     If  the  thing  offered  is 
not  in  every  respect  up  to  the  sample  or  description,  the  buyer  may 
repudiate  the  whole  contract. 

316.  Form  of  Chattel  Mortgage. — A  chattel  mortgage,  from  its 
form,  would  appear  to  be  a  kind  of  conditional  sale,  but  it  is  in 
reality  but  a  security  for  a  debt.     A  note  is  usually  given,  and  the 
mortgage  is  executed  to  secure  that  note.     By  referring  to  the  form 
given  in  connection  herewith,  it  will  be  seen  that  it  begins  by  an 
absolute  bill  of  sale  of  the  goods,  with  a  covenant  of  warranty.     The 
goods  must  be  accurately  and  minutely  described,  so  that  they  may 
be  identified.     Then  follows  a  proviso  or  condition  that  if  the  note 
or  debt  (describing  it)  shall  be  paid,  then  the  sale  to  be  void. 


CONDITIONAL   SALES.  129 


Bll  dfcen  bg  Sbege  Pre0ent0t  That  G.  W.  Brawn,  of  the  Town 
of  Peoria,  in  the  County  of  Peoria,  and  State  of  Illinois,  in  consideration  of 
the  sum  of  Five  Hundred  Dollars,  to  him  paid  by  J.  L.  Talbot,  of  the  County 
of  Porter,  and  State  of  Indiana,  the  receipt  whereof  is  hereby  acknowledged, 
does  hereby  grant,  sell,  convey  and  confirm  unto  the  said  J.  L.  Talbot,  and  to 
his  heirs  and  assigns,  the  following  goods  and  chattels,  to-wit  :  His  bay  mare 
"  Nellie  ;"  his  bay  horse  "Jerry,"  and  his  surrey,  including  both  tongue  and 
shafts. 

ttO  1>ave  ano  to  f)OlO  All  and  singular  the  said  goods  and  chattels,  unto 
the  said  Mortgagee  herein,  and  his  heirs,  executors,  administrators  and  assigns, 
to  him  and  their  sole  use,  forever.  And  the  Mortgagor  herein,  for  himself 
and  for  his  heirs,  executors  and  administrators,  does  hereby  covenant  to  and 
ivith  the  said  Mortgagee,  his  heirs,  executors,  administrators  and  assigns,  that 
said  Mortgagor  is  lawfully  possessed  of  the  said  goods  and  chattels,  as  of  his 
own  property  ;  that  the  same  are  free  from  all  incumbrances,  and  that  he  will, 
and  his  executors  and  administrators  shall,  warrant  and  defend  the  same  to 
him,  the  said  mortgagee,  his  heirs,  executors,  administrators  and  assigns, 
against  the  lawful  claims  and  demands  of  all  persons. 

PtOViDcO,  "WefCrtbelCSS.  That  if  the  said  Mortgagor,  his  executors  or 
administrators,  shall  well  and  truly  pay  unto  said  Mortgagee,  his  executors, 
administrators  or  assigns,  a  certain  promissory  note  of  even  date  herewith 
made  payable  by  the  said  Mortgagor  to  the  order  of  the  said  Mortgagee  for 
the  principal  sum  of  Five  Hundred  Dollars,  due  six  months  from  date,  with 
interest  at  six  per  cent  per  annum  from  date,  then  this  Mortgage  is  to  be  void, 
otherwise  to  remain  in  full  force  and  effect. 

Bnfc,  ptOVfZ>e&»  BlSO,  That  it  shall  be  lawful  for  the  said  Mortgagor,  his 
executors,  administrators  and  assigns,  to  retain  possession  of  the  said  goods, 
and  chattels,  and  at  his  own  expense,  to  keep  and  use  the  same,  until  he  or  his 
executors,  administrators  or  assigns,  shall  make  default  in  the  payment  of  the 
said  sum  of  money  above  specified,  either  in  principal  or  interest,  at  the  time 
or  times,  and  in  the  manner  hereinbefore  stated.  And  the  said  Mortgagor 
hereby  covenants  and  agrees,  that  in  case  default  shall  be  made  in  the  pay- 
ment of  the  note  aforesaid,  or  of  any  part  thereof,  or  the  interest  thereon,  on 
the  day  or  days  respectively  on  which  the  same  shall  become  due  and  payable  ; 
or  if  the  Mortgagee,  his  executors,  administrators  or  assigns,  shall  feel  him- 
self insecure  or  unsafe,  or  shall  fear  diminution,  removal  or  waste  of  said 
property  ;  or  if  the  Mortgagor  shall  sell  or  assign,  or  attempt  to  sell  or  assign, 
tJie  said  goods  and  chattels,  or  any  interest  therein,  or  if  any  writ,  or  any  dis- 
tress warrant,  shall  be  levied  on  said  goods  and  chattels,  or  any  part  thereof; 
then,  and  in  any  or  eitlier  of  the  aforesaid  cases,  all  of  said  note  and  sum  of 
money,  both  principal  and  interest,  shall  at  the  option  of  the  said  Mortgagee. 
his  executors,  administrators  or  assigns,  without  notice  of  said  option  to  any 
one,  become  at  once  due  and  payable,  and  the  said  Mortgagee,  his  executors, 
administrators  or  assigns,  or  any  of  them,  shall  thereupon  have  the  right  to 
take  immediate  possession  of  said  property,  and  for  that  purpose  may  pursue 
the  same  wherever  it  may  be  found,  and  may  enter  any  of  the  premises  of  the 
Mortgagor,  with  or  without  force  or  process  of  law,  wherever  the  said  goods 
and  chattels  may  be,  or  be  supposed  to  be,  and  search  for  the  same,  and  if 


130  THE  SALE  OF  PERSONAL  PROPERTY. 

found,  to  take  possession  of ,  and  remove,  and  sell,  and  dispose  of  the  said  prop- 
erty, or  any  part  thereof  at  public  auction,  to  the  highest  bidder,  after  giving 
ten  days'  notice  of  the  time,  place  and  terms  of  sale,  together  with  a  descrip- 
tion of  the  property  to  be  sold,  by  notices  posted  up  in  three  public  places  in 
the  vicinity  of  such  sale,  or  at  private  sale,  with  or  without  notice,  for  cash 
or  on  credit,  as  the  said  Mortgagee,  his  heirs,  executors,  administrators  or 
assigns,  agents  or  attorneys,  or  any  of  them,  may  elect ;  and  out  of  the  money 
arising  from  such  sale,  to  retain  all  costs  and  charges  for  pursuing,  searching 
for,  taking,  removing,  keeping,  storing,  advertising,  and  selling  such  goods 
and  chattels,  and  all  prior  Hens  thereon,  together  with  the  amount  due  and 
unpaid  upon  said  note,  rendering  the  surplus,  if  any  remain,  unto  said  Mort- 
gagor, or  his  legal  representatives. 

"CCUtness  the  hand  and  seal  of  the  said  Mortgagor,  this  27th  day  of  July, 
in  the  year  of  our  Lord  one  thousand  nine  hundred  one. 

O.  W.  BROWN.     [SEAL] 

CHATTEL  MORTGAGE. 

317.  Execution  and  Registry. — So  far  as  the  parties  themselves 
are  concerned,  a  chattel  mortgage  may  be  either  oral  or  in  writing, 
and  it  is  only  to  prevent  fraud  upon  third  persons  that  the  statutes 
have  quite  generally  regulated  the  matter.     A  party  in  possession  of 
personal  property  is,  in  the  absence  of  evidence  to  the  contrary,  pre- 
sumed to  be  the  owner.     For  this  reason  as  great  a  publicity  as  pos- 
sible is  given  to  the  fact  that  though  the  goods    remain  in  the 
possession  of  the  mortgagor,  yet  they  are  mortgaged.     Most  statutes 
require  that  the  mortgage  must  be  acknowledged  before  some  officer, 
usually  a  justice  of  the  peace  or  town  clerk  of  the  town  where  the 
property  is  situated  or  where  the  mortgagor  lives.     A  record  of  the 
mortgage  is  there  kept  convenient  to  all  who  may  wish  to  consult  it. 
In  addition,  the  mortgage  is  recorded  in  the  county  records      It 
thus  becomes  notice  to  the  world  what  the  mortgagor's  right  is,  and 
all  persons  are  presumed  to  take  notice  of  it. 

318.  Mortgagee's  Rights. — The  mortgagee's  rights  depend  largely 
upon  the  statutes  of  the  State,  and  also  upon  the  conditions  and 
covenants  of  the  instrument  itself.     He  often  has  the  right  by  con- 
tract to  enter  at  any  time  upon  the  premises  and  take  possession  of 
the  goods  if  he  deems  his  security  in  peril.     After  default  he  may 
take  possession  of  them  and  expose  them  to  public  sale,  after  adver- 
tising them  according  to  law.     He  usually  cannot  sell  them  at  private 
sale  unless  by  contract.     He  may  also  foreclose  the  mortgage  by  a 
suit  in  equity. 

In  many  States  a  chattel  mortgage  can  be  given  only  for  a  certain 


WARRANTY.  131 

length  of  time,  and  beyond  that  it  is  null  and  void.  Consequently, 
if  the  mortgagee  would  avail  himself  of  the  advantage  of  his  mort- 
gage, he  must  do  so  during  its  life,  or  if  he  does  not  he  may  find 
himself  postponed  to  other  creditors. 

319.  Presumption. — When   a    sale   is    made   the   parties   do   not 
always  definitely  agree  upon  all  the  details  of  the  contract.     In  this 
case  it  remains  for  the  law  to  supply  by  inference  what  they  have 
omitted.     As  we  have  previously  remarked,  they  do  not  always  agree 
on  the  price,  but  the  law  presumes  that  a  reasonable  price  was 
intended.     In  like  manner,  nothing  being  said  about  the  manner  of 
payment,  it  is  presumed  that  cash  was  intended.     All  these  pre- 
sumptions may,  however,  be  overcome  by  the  circumstances  of  the 
case,  and  the  previous  dealings  of  the  parties. 

320.  Warranty. — A  warranty  is  an  express  or  implied  statement  of 
something  which  a  party  undertakes  shall  be  a  part  of  a  contract. 
It  is  usually  an  undertaking  on  the  part  of  the  seller  that  the  thing 
sold  is  as  represented.     A  representation  is  not  always  a  warranty. 
Only  the  representations  that  are  made  in  such  a  way  as  to  become 
a  part  of  the  contract,  and  one  of  its  inducements,  are  warranties. 
A  mere  matter  of  opinion,  stated  as  such,  will  not  amount  to  a 
warranty. 

A  enters  B's  store  to  buy  a  case  of  blackberries.  B  shows  him  the  berries 
and  remarks  that  they  are  the  finest  that  have  been  or  will  be  on  the  market 
this  season.  This  is  a  representation  but  not  a  warranty. 

321.  Caveat  Emptor. — It  is  an  old  rule  of  law  that  the  buyer  of 
personal  property  takes  it  at  his  own  risk.     Caveat  Emptor^   "let 
the  buyer  beware."     This  rule  applies,  as  we  shall  see,  more  espe- 
cially to  the  quality  of  the  subject  matter,  and  throws  all  risk  in  this 
respect  on  the  buyer.     The  seller  may  have  given  an  express  war- 
ranty of  quality,  but,  as  a  rule,  it  is  not  presumed. 

322.  Time   When  the   Warranty  Was  Made.— The  time  when  a 
statement  is    made    has   much   to   do   in   determining   whether  it 
amounts  to  a  warranty  or  not.     An  offer  to  warrant,  made  at  the 
time  of  making  the  proposition,  was  held  good  when  the  proposition 
was  accepted,  some  days  later,  upon  the  faith  of  the  warrant.     The 
intention  and  circumstances  largely  govern  such  cases,  but  in  gen- 
eral, statements  to  be  binding  as  warranties,  should  be  contempo- 
raneous with  the  sale.     If  made  after  the  sale  has  been  completed, 
the  warranty  is  void  for  want  of  consideration. 


132  THE  SALE  OF  PERSONAL  PROPERTY. 

A  bought  a  bicycle  from  B,  a  dealer.  After  the  price  had  been  paid,  and 
when  A  was  leaving,  he  asked  if  there  was  a  warrant  on  the  machine,  and 
was  told  by  B  that  he  would  warrant  it  for  a  year.  This  is  of  no  value  for 
lack  of  consideration. 

323.  Kinds. — Warranties  are  either  expressed  or  implied,,  and  in 
reference  to  the  thing  warranted,  are  either  of  title  or  of  quality. 


KINDS. 


-n,  a.  Express. 

1.  As  to  Expression. 

b.  Implied. 

a.  Of  Title. 

2.  As  to  Subject  matter-  &  Qf  Quality 


324.  Warranty  of  Quality. — Whether  a  statement  made  at  the 
time  of  sale  will  amount  to  an  express  warranty  or  not  depends,  as 
we  have  said,  upon  the  circumstances  of  each  case.     If  there  was  a 
serious  defect  covered  by  the  seller's  statement,  and  one  peculiarly 
within  his  knowledge,  and  not  open  to  the  buyer's  inspection,  it  will 
have  great  weight  in  deciding  his  statement  to  be  a  warranty.     But 
it  must  be  remembered  that  Caveat  Emptor  is  the  general  rule  and 
that  these  are  only  exceptions  or  modification  of  it. 

325.  When  Warranty  of  Quality  Is  Implied. — When  the  buyer  is 
not  permitted  to  inspect  the  goods,  or  where  inspection  from  the 
nature  of  the  case  is  impossible,  the  rule  of  Caveat  Emptor  does  not 
apply,  and  a  warranty  is  implied.     This  is  the  case  when  goods  are 
sold  by  sample  or  description.     When  goods  are  ordered  for  a  par- 
ticular purpose,  and  the  buyer  must  necessarily  rely  on  the  judgment 
and  expert  knowledge  of  the  seller,  a  warranty  is  implied  that  such 
knowledge  will  be  used. 

326.  When  Warranty  of  Title  Is  Implied. — On  this  question  the 
courts  make  a  distinction  between  goods  in  the  possession  of  the 
seller  at  the  time  of  sale,  and  those  not  in  his  possession.     As  to  the 
former,  a  warranty  of  title  is  implied,  but  not  as  to  the  latter.     If 
the  seller  be  an  officer  of  the  law,  or  a  trustee,  no  warranty  of  title  is 
implied,  consequently  he  who  buys  at  such  a  sale  merely  buys  what 
right  or  interest  the  seller  may  have  had. 

327.  Lost  Property. — The  finder  of  lost  property  has  a  valid  title 
thereto  against  every  one,  except  the  true  owner.     One  who  pur- 
chases such  property  from  the  finder,  for  value,  acquires  no  title 
against  the  real  owner,  who  can  recover  it  at  any  time.     The  buyer, 
in  such  case,  has  no  recourse  but  the  implied  warranty  of  title  by 
possession  on  which  to  rely. 


PEACTICAL   REVIEW.  133 

PRACTICAL    REVIEW. 

I.  A  buys  of  B  all  the  lumber  of  a  certain  quality  in  a  certain  pile  and  is 
given  possession  of  it  all  to  select  his  portion.     Before  he  makes  the  selection 
the  pile  is  seized  by  a  creditor  of  B.     What  rights  has  A? 

II.  A  sells  to  B  100  barrels  of  salt  lying  in  a  warehouse  and  endorses  the 
warehouse  receipt  to  B.     If  A's  creditors  should  attach  the  salt  what  would 
be  B's  rights? 

III.  A  ordered  a  wagon  of  B.     A  examined  it  while  it  was  being  painted 
and  was  pleased  with  it.     The  shop  and  wagon  were  burned.     Who  must 
bear  the  loss? 

IV.  A  gave  a  bill  of  sale  of  his  furniture  to  B,  who  did  not  remove  it.     It 
was  afterwards  attached  by  A's  creditors  when  B  claimed  it.     What  are  B's 
rights? 

V.  A  orders  goods  of  B  by  sample.     When  the  goods  arrive  he  opens 
them,   but  finds  them  not  up  to  sample.     What  should  A  do  to  prevent 
liability? 

VI.  A  sells  his  piano  to  B  and  gives  a  bill  of  sale  but  the  piano  is  not 
removed.     Afterwards  A  sells  it  to  C  who  removes  it,  when  B  claims  it  and 
produces  his  bill  of  sale.     Who  is  entitled  to  it  and  why? 

VII.  A  orally  agrees  to  sell  to  B  a  certain  bin  of  wheat  holding  about  500 
bushels  at  90  cents  per  bushel.     The  next  day  C  offers  him  81  per  bushel  for 
half  of  it.     He  accepts  C's  offer  and  delivers  the  wheat  to  C.     What  are  B's 
rights? 

VIII.  A  sells  to  B  500  bushels  of  corn  at  40  cents  per  bushel  to  be  deliv- 
ered at  a  certain  future  time.     One  hundred  dollars  were  paid  down  by  B  as 
earnest  money.     A  delivers  300  bushels  according  to  contract,  but  refuses  to 
deliver  more.     What  are  B's  rights? 

IX.  A  ships  goods  at  Chicago  to  B  of  Baltimore.     The  next  morning  B's 
failure  is  announced  in  the  papers.     If  the  sale  be  on  credit,  what  can  A  do? 

X.  A  sells  a  number  of  hats  to  B.     The  hats  are  in  the  next  room  and  A 
offers  to  show  them,  but  B  says  it  is  unnecessary.     When  they  are  delivered 
he  finds  that  they  are  not  of  the  quality  he  supposed.     What,  if  anything, 
can  B  do  about  it? 

XI.  A  agrees  to  sell  B  6,000  bushels  of  corn  at  35  cents  per  bushel  and 
was  to  have  six  weeks  in  which  to  deliver  it.     He  delivered  3,000  bushels  in 
two  weeks  when  he  refused  to  deliver  any  more.     What  are  the  rights  of 
each  party? 

XII.  In  the  above  case  suppose  the  seventh  week  A  tenders  the  remain- 
ing 3,000  bushels,  must  B  receive  it? 

XIII.  A,  a  drover,  bought  a  carload  of  cattle  from  a  farmer  who  was  to 
deliver  them  to  the  railroad  company  on  a  certain  day  for  transportation. 
The  day  the  farmer  was  to  deliver  the  stock  he  was  otherwise  engaged  and 
did  not  make  the  delivery  until  three  days  afterwards.     Between  the  time 
when  he  should  have  made  the  delivery  according  to  agreement  and  the  day 
when  he  did  make  it,  two  of  the  cattle  died.     On  whom  will  the  loss  fall? 


REVIEW   QUESTIONS. 

1.  Define  a  sale  of  personal  property.  2.  Designate  the  parties  to  a  sale. 
3.  What  are  the  essentials  of  a  sale?  4.  What  may  be  subject  matter  of  a 
sale?  5.  Can  property  not  now  in  existence  be  the  subject  of  sale?  6.  Name 
something  which  cannot  be  sold.  7.  How  does  the  Statute  of  Frauds  affect 
a  sale  in  your  State?  8.  What  must  be  done  to  comply  with  the  statute? 
9.  Must  the  memorandum  be  formal?  10.  Who  must  sign  it?  11.  How  does 


134  THE  SALE  OF  PERSONAL  PROPERTY. 

the  rule  in  this  regard  differ  from  the  ordinary  rule  of  contracts?  12.  What 
must  the  memorandum  contain?  13.  What  is  a  bill  of  sale?  14.  Is  it 
acknowledged?  15.  Is  the  Statute  of  Frauds  a  rule  of  evidence  or  does  it 
relate  to  the  validity  of  the  contract?  16.  Why  is  this  a  material  question? 
17.  What  is  delivery?  18.  Why  is  the  question  of  the  exact  time  of  delivery 
important?  19.  Can  one  sell  and  deliver  goods  and  still  retain  their  posses- 
sion? 20.  Give  an  illustration.  21.  In  what  capacity  does  one  hold  goods 
that  he  has  sold?  22.  When  one  buys  goods  that  are  to  be  delivered  by  the 
seller,  whose  loss  is  it  in  case  of  their  destruction?  23.  What  is  the  English 
rule  on  this  question?  24.  What  is  the  test  laid  down  by  Kent?  25.  In  the 
absence  of  agreement  or  custom  where  is  delivery  presumed?  26.  In  the 
absence  of  an  agreement  when  is  it  presumed  that  payment  is  to  be  made? 
27.  How  can  one  deliver  without  a  change  of  possession?  28.  What  is  the 
rule  for  delivery  by  installments?  29.  Whose  agent  is  a  carrier,  the  buyer's 
or  the  seller's?  30.  How  is"  a  sale  without  change  of  possession  often  a 
fraud  on  third  persons?  31.  What  is  constructive  delivery?  32.  What  is 
meant  by  stoppage  in  transitu?  33.  How  and  when  may  it  be  exercised? 
34.  What  is  its  effect?  35.  How  does  a  sale  "on  trial"  differ  from  a  sale 
with  privilege  of  returning?  36.  What  is  a  chattel  mortgage?  37.  How  are 
they  usually  executed?  38.  What  is  a  warranty?  39.  What  is  meant  by 
"Caveat  Emptor"?  40.  When  will  a  statement  be  construed  as  a  warranty? 
41.  When  will  a  warranty  of  title  be  implied?  42.  When  will  a  warranty  of 
quality  be  implied?  43.  Who  is  entitled  to  lost  property? 


BAILMENT.  135 


BAILMENT. 


CHAPTER  XXIX. 

328.  Introduction. — Bailment  is  a  very  important  branch  of  the 
law.     When  we  learn  that  it  includes  the  law  in  reference  to  the 
borrowing,  lending,  hiring  and  the  keeping  of   chattels,   and    the 
carrying  or  working  upon  them  for  another,  we  can  realize  the  force 
of  the  above  statement.     The  word  comes  from  the  Norman-French 
bailler,  meaning  to  deliver.     Hence  that  which  is  delivered  to  another 
for  any  of  the  purposes  named  above,  is  bailed  to  him.     The  law 
which  determines  the  rights  and  duties  of  the  parties  in  relation  to 
the  property  and  to  each  other,  is  the  law  of  bailment.     The  one  who 
delivers  the  goods  is  called  the  bailor,  and  the  one  to  whom  delivery 
is  made  is  called  the  bailee. 

Bailment  is  defined  as  a  delivery  of  goods  or  money  by  one  person 
to  another  in  trust  for  some  special  purpose  upon  a  contract  expressed 
or  implied  that  the  trust  shall  be  faithfully  executed. 

329.  Kinds. — The  subject  of  Bailment  is  divided  on  the  basis  of 
the   thing  to  be   done    to  the   property    into   five   classes,  viz:    I 
Deposit;    II    Commission;   III    Gratuitous    Loans;    IV  Pledge;    V 
Hire.     These  will  be  considered  separately. 

330.  Degrees  of  Care. — One  of  the  most  important  questions  in 
reference  to  bailments,  and  one  which  the  bailee  should  answer  imme- 
diately upon  receipt  of  the  chattel,  is  in  regard  to  the  degree  of  care 
required  of  him  to  save  himself  harmless  in  case  of  its  loss  or  destruc- 
tion.    Courts  have  established  and  defined  for  this  purpose  three 
kinds  of  care,  viz. :  1.  Slight  care,  or  that  degree  of  care  which  every 
man  of  common  sense,  though  very  absent  minded  and  inattentive, 
applies  to  his  own  affairs.     2.  Ordinary  care,  which  is  that  degree 
of  care  which  every  person  of  common  and  ordinary  prudence  takes 


136 


BAILMENT. 


of  his  own  concerns.  3.  Great  or  extraordinary  care,  which  is  the 
degree  of  care  that  a  man  remarkably  exact  and  thoughtful  gives  to 
his  own  property.  It  is  apparent  that  the  degree  of  care  required 
measures  inversely  the  degree  of  negligence  for  which  the  bailee  will 
be  responsible.  Thus,  if  slight  care  is  required,  he  will  only  be  liable 
for  gross  negligence.  If  ordinary  care  is  required,  he  will  be  liable 
for  ordinary  negligence,  and  if  great  care  is  required  he  will  be 
liable  for  slight  negligence. 

331.  General  Rule  as  to  Care. — It  will  be  noticed  that  some  bail- 
ments are,  from  their  nature,  solely  for  the  benefit  of  the  bailor.  In 
like  manner  some  exist  solely  for  the  benefit  of  the  bailee,  while  in 
other  cases  they  are  for  the  benefit  of  both.  If  the  bailment  is  for 
the  benefit  of  the  bailee,  he  must  take  great  care,  and  is  liable  for 
slight  negligence.  If  it  is  for  the  benefit  of  the  bailor,  the  bailee 
must  take  slight  care,  and  is  liable  for  gross  negligence.  And  if  for 
the  benefit  of  both  parties,  then  ordinary  care  is  required,  and  the 
bailee  is  liable  for  ordinary  negligence. 


KIND  OF 
BAILMENT. 

FOB  BENEFIT  OF 

CARE  REQUIRED. 

FOR  WHAT 
NEGLIGENCE    LIABLE. 

Deposit. 
Commission. 
Loan  for  Use. 
Pledge. 
Hire. 

Bailor. 

Bailee. 
Both. 

Slight. 

Great. 
Ordinary. 

Gross. 

Slight. 
Ordinary. 

DEPOSIT. 

332.  Definition. — Deposit  is  a  delivery  of  goods  and  chattels  to 
another,  to  be  kept  and  returned  without  recompense.     A  distinction 
should  be  drawn  between  the  ordinary  case  of  deposit  in  a  bank, 
subject  to  check,  and  deposit  as  here  defined.     That  is  not  a  bail- 
ment, but  a  case  of  debit  and  credit.     It  is  not  expected  that  the 
identical  money  will  be  returned.     Here  the  same  property  must  be 
returned. 

333.  Liability. — As  the  keeping  is  gratuitous,  it  is  solely  for  the 
benefit  of  the  bailor,  and  the  bailee  is  liable  only  for  gross  negligence. 
The  question  of  what  is  gross  negligence,  it  will  be  readily  seen, 
must  depend  upon  a  variety  of  circumstances,  such  as  the  nature  and 
quality  of  the  goods,  and  the  character  and  custom  of  the  place. 
What  would  be  ordinary  care  in  case  of  one  class  of  goods,  would  be 
gross  negligence  in  case  of  another. 


COMMISSION.  137 

A  being  about  to  start  on  a  journey,  and  intending  to  be  abroad  some  time, 
puts  his  valuables,  including  his  household  plate,  in  the  hands  of  B  for  safe 
keeping.  This  is  a  case  of  deposit,  and  B,  if  he  would  avoid  liability,  must 
take  at  least  slight  care.  But  slight  care  in  case  of  articles  of  this  kind  may 
be  better  than  great  care  in  case  of  something  less  valuable. 

334.  Duty  of  Bailee. — The  bailee  is  bound  to  deliver  the  thing  a3  it 
was,  and  with  all  its  increase  or  profit.     But  it  is  sufficient  if  he 
delivers  or  tenders  it  at  his  own  residence  or  place  of  business.     No 
one  is  obliged  to  become  a  bailee  against  his  will,  hence  if  he  find  a 
chattel  he  does  not  have  to  take  possession  of  it,  but  if  he  does  take 
possession  of  it,  he  is  liable  to  the  owner  as  a  bailee  for  deposit. 

A,  for  reasons  of  his  own,  desired  B  to  see  a  valuable  picture  owned  by 
C.  He  borrowed  the  picture  of  C  and  sent  it  by  a  son  of  B's,  who  placed  it 
on  a  mantel  in  his  father's  house.  The  picture  was  there  much  injured  by 
the  fire.  C  brought  an  action  against  B  for  the  damage  to  the  picture,  but 
it  was  decided  that  B  could  not  be  made  a  bailee  without  his  consent. 

335.  Use  of  the  Deposit. — As  a  rule  the  bailee  is  not  permitted  to 
use  the  deposit.     An  understanding,  however,  that  he  is  to  use  it 
may  exist  between  the  parties.      Thus  there  are  cases  when  the 
moderate  use  of  the  deposit  would  be  for  its  advantage. 

336.  Right  of  Bailor. — The  bailor  may  demand  the  return  of  his 
property  at  any  time,  but  he  cannot  maintain  an  action  against  the 
bailee  until  he   makes  a  demand  for  its  return,  and  it  has  been 
refused. 

337.  Rights  of  Bailee. — While  it  is  true  that  deposit  is  a  gratui- 
tous bailment,  yet  the  bailee  is  entitled  to  be  repaid  for  any  legitimate 
expense  to  which  he  may  have  been  put  for  the  preservation  of  the 
deposit.     He  is  not,  however,  entitled  to  any  compensation  for  his 
own  services.     The  bailee  may  terminate  the  bailment  at  any  time 
by  giving  the  bailor  notice,  and  a  reasonable  time  in  which  to  remove 
the  deposit. 

COMMISSION. 

338.  Definition. — Commission  is  that  class  of   bailment  in  which 
the  bailee  undertakes  gratuitously  to  do  something  for  the  bailor  in 
reference  to  the  thing  bailed.     In  deposit  the  principal  thing  was  the 
keeping,  but  in  commission  it  is  the  work  to  be  done.     A  clear  dis- 
tinction should  be  drawn  between  this  class  of  bailment  and  the 
ordinary  sale  of  goods  on  commission.     This  is  gratuitous  while  that 
is  undertaken  for  a  consideration. 


138  BAILMENT. 

A  owed  a  note  due  at  a  bank  in  a  distant  city.  B,  going  there,  was  given 
by  A  an  important  letter  to  deliver,  and  the  money  to  pay  the  note,  but  he 
neglected  both  to  deliver  the  letter  and  to  pay  the  note.  He  was  held  liable 
for  his  failure  to  complete  the  service.  This  is  a  case  of  commission. 

339.  Compensation. — It  will    be    noticed    that    commission    is    a 
gratuitous  undertaking,  and  it  may  be  suggested  to  some  that  for 
this  reason  such  a  contract  cannot  be  enforced.     But  it  is  held  that 
if  the  bailee  accepts  the  property  and  the  trust,  and  enters  upon  the 
execution  of  his  agency,  he  is  liable  for  malfeasance.     It  is  true  that 
he  may  derive  no  advantage  whatever  from  the  bailment,  but  it  is 
sufficient  if  the  bailor  may  suffer  damage  in  consequence  of    the 
bailee's  failure  to  complete   the  trust.      The  consideration  is  the 
delivery  of  the  goods  by  the  bailor. 

340.  Liability  of  Bailee. — Commission  being  a  bailment   for  the 
benefit  of  the  bailor,  the  bailee  is  required  to  take  slight  care,  and  is 
only  liable  for  gross  negligence.     If  the  bailee  does  not  enter  upon 
his  trust  he  is  not  liable  for  his  failure,  but  if  he  attempt  to  perform 
a  service  for  another,  even  though  it  be  gratuitous,  he  will  be  liable 
unless  he  has  used  proper  care  and  skill. 

A  and  B  were  farmers.  B  learning  that  A  was  going  to  town  the  follow- 
ing day,  gave  him  a  sum  of  money  with  which  to  buy  a  watch.  During  the 
night  thieves  broke  in  and  stole  from  A  both  his  own  money  and  also  B's. 
Would  A  be  liable  for  B's  loss?  What  determines  A's  liability? 

341.  When  Skill  Is  Required. — The  degree  of    skill  a  bailee  is 
required  to  bring  to  bear  in  the  execution  of  a  trust  of  this  nature, 
depends  upon  the  circumstances  of  the  case  and  the  intention  of  the 
parties.     It  depends  somewhat  upon  his  occupation  or  profession, 
and  the  nature  of  the  services  to  be  performed.     Should  a  profes- 
sional trainer  offer  to  train  gratuitously  a  horse  for  a  coming  race,  he 
would  be  held  to  a  greater  degree  of  skill  than  would  a  non-profes- 
sional. 

342.  Bailee's  Interest. — As  in  deposit,  while  the  bailee  is  to  per- 
form services  without  consideration,  yet  if  he  has  been  to  any  neces 
sary  expense  for  the  preservation  of  the  things  bailed,  or  for  the 
accomplishment  of  the  object  of  the  trust,  he  is  entitled  to  reim- 
bursement, and  has  a  lien  upon  the  property  until  paid. 

343.  Bailee's  Duties. — It  is  the  duty  of  the  bailee  to  return  the 
thing  itself  to  the  bailor,  together  with  all  the  increase  or  profits 
thereof.     In  the  case  of  animals,  their  young  must  be  returned  with 
them.     It  is  also  the  duty  of  the  bailee  to  render  an  account  of  his 
execution  of  the  trust  when  called  upon  by  the  bailor  to  do  so. 


GRATUITOUS   LOAXS.  139 


CHAPTER  XXX. 
GEATUITOUS   LOANS. 

344.  Definition. — This  is  a  delivery  of  goods  to  another,  to  be  used 
by  him  without  recompense  to  the  lender.     It  includes  all  cases  of 
borrowing  the  goods  of  another  without  compensation.     The  benefit 
is  all  on  the  side  of  the  borrower  or  bailee. 

345.  Compensation. — This  class  of  bailment  must  be  gratuitous, 
for  if  there  be  a  compensation  for  the  use  of  the  thing  it  is  then  s, 
bailment  for  hire,  and  hence  for  the  benefit  of  both  parties. 

346.  Diligence  Required. — As  might  be  inferred  from  the  general 
rule  already  laid  down,  the  borrower  is  required  to  use  great  care,  and 
is  liable  for  the  slightest  negligence.     This  rule  is  rigidly  enforced, 
for  it  is  deemed  that  the  least  the  borrower  can  do  is  to  use  his  utmost 
endeavor  to  preserve  the  thing  borrowed.     It  must  not,  however,  be 
inferred  that  he  actually  insures  the  safety  of  the  goods. 

347.  Use  of  Thing  Borrowed. — The  borrower  is  confined  strictly 
to   the  use  for  which  the  thing  was  loaned  whether  this  use  be 
actually  agreed  upon  or  was  a  matter  of  implication.     So  strict  is  the 
rule  of  law  in  this  regard  that  it  has  been  held  that  if  a  horse  was 
loaned  to  ride  to  a  certain  place,  the  borrower  would  have  no  right 
to  ride  him  elsewhere  in  another  direction,  even  though  it  may  not 
be  so  far  and  he  may  travel  over  a  better  road.     If  the  borrower  does 
so  change  his  destination,  he  becomes  absolutely  liable  for  the  ani- 
mal's safety.     If  the  thing  was  loaned  for  a  certain  time,  he  may 
use  it  for  that  time,  but  has  no  right  to  retain  it  longer. 

348.  A  Personal  Use. — A  gratuitous  loan  is  considered  a  strictly 
personal  trust,  unless  from  the  circumstances  a  different  intention 
can  be  fairly  inferred.     This  being  the  case,  the  borrower  has  no 
right  to  relend  the  thing.     Thus,  if  A  lends  his  horse  to  B,  B  will 
not  be  justified  in  relending  it  to  C,  for  while  A  might  be  perfectly 


140  •       BAILMENT. 

willing  to  lend  his  horse  to  B,  in  whom  he  has  especial  confidence, 
yet  he  might  not  be  willing  to  trust  him  into  the  hands  of  C. 

349.  Liability  of  Borrower. — If  the  borrower  is  put  to  any  expense 
in  reference  to  the  thing  borrowed,  he  will,  as  a  rule,  be  obliged  to 
pay  it.     He  is  liable  for  the  keep  of  an  animal  he  may  borrow,  and 
for  any  repairs  on  a  borrowed  machine,  occasioned  by  his  use  of  it. 
He  is  not  liable  for  inevitable  accidents  that  could  not  be  foreseen  or 
guarded  against.     But  in  such  cases  there  must  be  no  trace  of  fault 
on  his  part,  for  if  by  his  acts  or  his  lack  of  caution  he  seems  to  have 
courted  danger,  he  will  be  responsible. 

A  borrowed  a  valuable  violin  from  B.  Some  time  after,  the  violin  was 
stolen  from  A's  house.  In  a  trial  for  the  recovery  of  the  value  of  the  violin 
it  appeared  that  A  left  the  instrument  in  his  home,  that  all  the  doors  were 
securely  locked,  but  that  the  thief  forced  open  the  door  and  took  the  violin, 
together  with  other  goods  belonging  to  A.  A  was  held  not  liable. 

350.  Liabilities  of  Lender. — It  has  been  decided  that  the  lender  is 
liable  to  the  borrower  for  any  mischief   arising  directly  from  the 
unsafe  condition  of  the  thing  borrowed,  if  this  fact  be  known  to  the 
lender  and  not  communicated  to  the  borrower.     The  lender  must  not 
interfere  with  the  borrower's  use  and  enjoyment  of  the  thing  borrowed, 
during  the  time  for  which  the  loan  was  made.     For  this  period  the 
borrower  has  a    certain    property  in   the   thing   borrowed,   to   the 
exclusion  of  the  owner. 

351.  Return  of  Property. — The  borrower  should  return  the  prop- 
erty at  the  end  of  the  period  for  which  the  loan  was  made.    He  must 
return  all  profits  and  increase  of  the  borrowed  property.     If  he  does 
not  make  a  proper  return  of  the  property  he  is  liable  even  for  acci- 
dents that  may  befall  it. 

PLEDGE. 

352.  Definition. — This  is  a  delivery  of  goods  by  a  debtor  to  his 
creditor  to  be  kept  as  a  security  till  a  certain  debt  or  obligation  be 
discharged.     It  is  for  the  benefit  of  both  parties,  for  while  the  bailee 
(pledgee)  obtains  security  for  his  loan,  the  bailor  (pledgeor)  is  enabled 
to  obtain  credit  or  other  indulgence. 

353.  What  may  be  Fledged. — As  a  rule  anything  may  be  pledged 
that  can  be  sold  or  that  may  be  assigned  (sec.  133).     This  includes 
almost  all  kinds  of  personal  property,  except  as  noted.     Articles  that 
fall  within  the  statute  of  exemptions  may  be  pledged. 


PLEDGE.  141 

354.  Degree  of  Care. — This  being  a  bailment  for  the  benefit  of 
both  parties  the  bailee  is  required  to  exercise  ordinary  care  and  is 
liable  for  ordinary  negligence. 

355.  The  Debt. — From  the  definition  of  pledge  it  follows  that  in 
every  case  there  mast  exist  a  debt  or  an  obligation  to  perform  some 
act  for  which  the  pledge  be  given.     The  pledge  may  be  held  until 
the  debt,  interest,  and  all  necessary  expenses  incidental  to  its  posses- 
sion have  been  paid.     Only  by  agreement  can  the  pledge  be  made 
to  cover  obligations  not  yet  incurred.     The  debt  secured  may  be 
either  absolute  or  conditional.     It  may  be  for  the  loan  of  money,  or 
it  may  be  for  a  conditional  obligation,  such  as  to  indemnify  the 
pledgee  for  becoming  an  indorser  or  surety  for  the  pledgeor. 

356.  Delivery  in  Pledge. — Delivery  of  the  pledged  property  to  the 
bailee  is  absolutely  essential  to  the  establishment  of  the  relation  of 
pledgeor  and  pledgee,  always  having  in  mind  such  change  of  posses- 
sion as  the  nature  of  the  thing  allows.      As  we  have  frequently 
remarked  (sec.  169)  advances  are  frequently  made  by  way  of  pledge 
upon  the  transfer  of  bills  of  lading  and  warehouse  receipts.     Stocks, 
bonds,  notes,  judgments,  insurance  policies,  leases  and  mortgages 
may  likewise  be  delivered  as  pledges  by  any  means,  that  will  put 
them  in  the  control  of  the  pledgee  such  as  endorsement  or  power  of 
attorney  to  endorse. 

357.  When  Pledgee   may   use   Property. — Whether    the  pledgee 
has  the  right  to  use  the  pledge  or  not  depends  on  the  nature  of  the 
pledge  and  the  circumstances  of  the  case.    If  a  moderate  use  be  essen- 
tial to  the  preservation  of  the  pledge,  then  such  use  would  not  only 
be  justifiable  but  indispensable  to  a  faithful  discharge  of  the  trust. 
But  if  its  use  would  deteriorate  the  pledge  then  he  should  not  use  it. 

358.  Property  of  Pledgee  in  the  Pledge. — The  pledgee  has  a  spe- 
cial property  in  the  pledge  by  virtue  of  the  bailment,  and  may  sue  not 
only  third  persons,  but  the  owner  himself,  for  wrongfully  interfering 
with  his  right  of  possession.     Against  third  persons  his  measure  of 
damages  is  the  full  value  of  the  pledge,  for  he  must  account  to  the 
owner  for  that  amount.     The  pledgee  may  in  turn  re-pledge  his  inter- 
est in  the -property  to  another. 

359.  Pledgeor's  Eight  of  Transfer. — While  it  is  true  the  pledgeor 
has  parted  with  his  property  for  value,  yet  he  has  not  parted  with  the 


142  BAILMENT. 

entire  property  in  it,  but  still  retains  a  right  to  redeem  it  by  paying 
the  debt  for  which  his  property  is  held.  This  right  he  can  sell  and 
assign  to  another,  in  which  case  the  vendee  will  stand  in  the 
pledgeor's  place. 

360.  Wrongful   Fledge. — As  the  purchaser  of    personal  property 
acquires  no  title  as  against  the  true  owner  who  has  not  given  his 
assent  to  the  sale  either  expressly  or  by  implication,  so  a  pledgee  who 
receives  property  from  one  not  the  true  owner,  acquires  no  title  as 
against  that  owner.     It  is  on  this  principle  that  stolen  goods  are 
often  recovered  by  the  owner  from  a  pawnbroker,  where  they  have 
been  pledged  by  the  thief. 

361.  Pledge  Differs  from  Mortgage. — It  has  often  been  said  that 
a  pledge  differs  from  a  chattel  mortgage  in  that  when  property  is 
pledged  the  title  remains  still  in  the  pledgeor ;  but  when  mortgaged 
it  passes  to  the  mortgagee,  subject  to  a  condition.     A  clearer  dis- 
tinction  seems   to   be  that  in  pledge  the  possession  passes  to   the 
pledgee,  while  in  a  mortgage  the  possession  usually  remains  with  the 
mortgagor. 

362.  Remedies  of  Pledgee. — The  pledgee  has  no  remedies  until  the 
pledgeor  is  in  default,  after  which,  and  while  the   debt  remains 
unpaid,  he  has  the  following:     (1)  To  sue  the  pledgeor  personally 
for  his  debt,  without  selling  the  pledge.     (2)  Electing  to  take  his 
remedy  upon  the  pledge,  he  can  file  a  bill        equity  and  obtain  a 
decree  of  foreclosure.     (3)  He  can  give  a  reasonable  notice  to  the 
debtor  to  redeem  the  pledge,  and  then  at  his  option  sell  the  pledge. 

The  sale  must  be  open  and  public,  and  the  actions  of  the  pledgee 
free  from  fraud.  The  pledgee  has  no  right  to  retain  the  pledge  in 
satisfaction  of  his  claim,  for  until  disposed  of  in  one  of  the  regular 
ways  mentioned  above,  he  still  holds  it  as  a  pledge,  and  must  restore 
it  upon  being  tendered  the  amount  of  the  debt,  interests  and  legal 
charges.  It  is  said  that  he  should  not  buy  the  pledge  at  his  own 
sale,  nor  should  he  sell  at  private  sale  unless  the  conditions  of  the 
pledge  permit  it.  If  the  proceeds  do  not  pay  his  debt,  he  can  sue 
for  the  deficit ;  and  if  the  sale  realizes  more,  he  should  account  for 
the  excess  to  the  pledgeor.  If  the  pledge  consists  of  several  chattels, 
one  or  more  of  which  will  satisfy  his  claim,  he  is  not  authorized  to 
sell  the  remainder,  but  should  hold  them  for  the  use  of  the  owner. 
68  So.  W.  Rep.  1068.  5Q  So.  W.  Rep.  1117. 


HIKE    OF  THINGS.  143 

363.  Negotiable  Paper  an  Exception. — It  is  held  by  the  courts  of 
many  States1  that  commercial  paper,  such  as  bonds,  notes  and  mort- 
gages, pledged  as  collateral  security,  cannot  be  sold  in  the  absence 
of  a  special  agreement,  but  must  be  held  and  collected  as  they 
become  due.  Where  this  is  the  case,  the  pledgee  should  secure  the 
power  of  sale  at  the  time  of  taking  the  pledge. 

The  business  of  Pawnbrokers  is  quite  generally  regulated  by 
statute.  They  are  often  required  to  report  daily  to  the  police  depart- 
ment what  pledges  they  have  taken  for  the  day. 


CHAPTER    XXXI. 

HIRE. 

364.  Introduction. — The  fifth  and  last  general  class  of  bailment, 
that  of  hire,  is  without  doubt  the  most  important  because  the  most 
comprehensive  of  all.     It  is  a  delivery  of  personal  property  to  another 
to  be  used,  or  to  have  some  labor  or  service  performed  upon  it,  and 
for  a  compensation.     It  is  a  case  of  hiring  for  a  compensation  the 
labor,  care,  or  property  of  another. 

365.  Divisions. — The  subject  may  be  divided  for  convenience  into 
four  divisions  or  classes,  viz. :     (1)  hire  of  things,  (2)  hire  of  serv- 
ices, (3)  hire  of  custody,  (4)  hire  of  carriage.     These  will  be  sepa- 
rately treated. 

HIRE  OF  THINGS. 

366.  Definition. — Hire  of  things  is  a  contract  whereby  the  bailee 
secures  the  use  of  the  bailor's  property  for  a  consideration. 

A  is  a  liveryman.     B  hires  from  him  a  team  and  buggy  to  drive  to  a  cer- 
tain place.    This  is  a  case  of  hire  of  things. 

367.  Duty   of  the   Letter. — The  letter  should  deliver  the   thing 
promptly  and  as  agreed.     If  it  has  become  broken  or  injured  the 
hirer  may  refuse  to  accept  it.     It  should  be  in  a  condition  to  be  used 
as  contemplated.     The  letter  must  not  in  any  way  interfere  with  the 
hirer's  use  of  the  thing,  and  he  has  no  right  to  resume  possession  of 

>  82  HI.  548.     165  Mast.  402. 


144  BAILMENT. 

it  during  the  period  for  which  it  was  let.  Neither  has  he  a  right  to 
give  possession  of  it  under  a  bill  of  sale,  so  that  the  hirer  will  be 
deprived  of  its  use.  The  owner  is  bound  to  keep  the  thing  in  proper 
condition  for  use,  but  the  hirer  of  an  animal  is  bound  for  the  expense 
of  its  keep. 

368.  Use  of  Thing  Hired. — The  hirer  has  a  right  to  use  the  thing 
only  in  the  manner  and  for  the  purpose  for  which  it  was  hired. 
Should  he  use  it  for  a  different  purpose  he  would  become  absolutely 
liable  for  any  loss  that  might  happen  to  it.     This  rule  is  not  now  so 
rigorously  enforced  as  formerly. 

A  hired  a  horse  for  a  certain  journey,  but  unexpectedly  meeting  a 
friend  turned  aside  to  visit  him,  using  all  the  while  prudent  care  of  the  ani- 
mal. The  horse  was  injured  by  stumbling,  and  the  hirer  was  held  not  liable. 

Much  latitude  is  now  given  the  hirer  in  his  proper  enjoyment  of 
the  article,  so  long  as  it  is  used  substantially  for  the  purpose,  and  in 
the  manner  for  which  it  was  hired.  But  if  pictures  are  hired  for  use 
in  a  dwelling,  this  would  not  authorize  placing  them  on  exhibition 
for  hire.  The  hirer  is  entitled  to  the  exclusive  use  of  the  thing 
hired  but  he  must  use  it  with  care  and  moderation. 

369.  Degree  of  Care. — The  hirer  must  use  ordinary  care  and  dili- 
gence and  is  responsible  for  ordinary  negligence.     He  should  restore 
the  thing  in  as  good  condition  as  when  received,  ordinary  wear  and 
tear  excepted,  unless  it  has  deteriorated  through  some  cause  beyond 
his  control.     If  it  be  injured  through  no  fault  or  neglect  of  his,  and 
while  he  was  making  proper  use  of  it,  he  will  not  be  responsible,  for 
the  risk  is  the  owner's. 

A  hired  from  B  a  horse  and  buggy  to  make  a  certain  journey.  While 
returning  over  the  regular  route  A  drove  at  a  walk  over  a  bridge  which  gave 
away  and  let  the  horse  and  buggy  into  the  stream  below.  As  a  result  the 
buggy  was  much  damaged.  A  was  not  laible  for  the  repairs  to  the  buggy, 
for  he  was  in  no  way  to  blame. 

The  hirer  is  not  only  responsible  for  his  own  default  or  negligence, 
but  for  that  of  his  servants  or  children. 

370.  As  to  Animals. — It  is  the  duty  of  the  hirer  of  an  animal  to 
supply  it  with  proper  food,  and  should  it  become  sick  and  unable  to 
perform  the  service  for  which  it  was  hired,  the  hirer  should  put  it 
aside,  and,  if  need  be,  secure  another  to  complete  his  work  or  jour- 
ney.    The  expense  of  this  will  devolve  on  the  owner,  for  he  has  war- 
ranted by  implication  that  the  animal  is  capable  of  that  for  which  it 
was  hired. 


HIKE   OF   SERVICES.  145 

371.  Duties  of  the  Hirer. — It  is  the  duty  of  the  hirer  upon  the 
termination  of  the  bailment,  to  deliver  the  thing  back  to  the  letter, 
and  to  make  recompense  to  him,  if  such  recompense  was  not  made  in 
advance.     He  should  deliver  it  back  in  proper  condition. 

HTRE  OF  SERVICES. 

372.  Definition. — Hire  of  services  is  a  delivery  of  goods  to  another 
to  have  some  work  or  service  performed  upon  them  for  a  compensa- 
tion.     It  differs  from  commission,  already  treated,  solely  in   the 
matter  of  compensation. 

A  watch  is  left  with  a  watchmaker  for  repair.  Paper  is  left  with  a 
printer  on  which  he  is  to  print  certain  matter.  These  are  both  cases  of  hire 
of  services. 

373.  Duties  of  Workman. — A  workman  should  do  the  work  him- 
self, unless  from  its  nature  or  from  the  circumstances  of  the  case  it 
is  understood  that  it  is  not  a  personal  trust.     If  it  be  such  work  as  is 
ordinarily  done  by  proxy  he  may  so  do  it,  but  unless  the  usages  of 
trade  sanction  it,  he  should  do  it  himself.     The  workman  must  use 
the  materials  furnished  him,  but  if  any  are  furnished  by  him  they 
must  be  such  as  are  proper  for  the  use  intended. 

374.  Skill  Required. — A  workman  should  do  the  work  in  a  skillful 
and  workmanlike  manner,  for  the  law  presumes  that  every  workman, 
who  holds  himself  out  as  such,  and  thereby  solicits  the  hire  of  his 
services,  possesses  the  usual  and  ordinary  degree  of  skill  in  that 
business.      If   any  damage  results  from  his  lack  of  proper   skill, 
though  he  may  have  done  the  best  he  could,  he  is  liable,  for  he 
should  not  have  undertaken  it.     The  hirer  had  a  right  to  presume 
by  his  acceptance  of  the  trust  that  he  possessed  the  usual  skill.     Of 
course  it  may  have  been  expressly  understood  that  he  did  not  engage 
the  usual  skill  and  in  that  case  the  workman  will  not  be  liable. 

When  one  employs  a  physician,  who  holds  himself  out  as  such,  he 
has  a  right  to  expect  that  he  brings  to  bear  ordinary  skill,  that  is, 
such  skill  as  is  usually  possessed  by  the  ordinary  practicing  physician, 
and  if  he  does  not,  he  will  be  liable  for  any  damage  which  may  result 
from  his  lack  of  such  skill.  The  same  is  true  of  a  practicing  attor- 
ney. If  he  lose  a  case  through  his  lack  of  proper  skill  he  is  liable  to 
his  client. 

375.  Care   and   Skill. — Care  and  skill  are  two  entirely  different 
things.     The  care  to  be  used  to  free  the  bailee  from  liability  is  that 


146  BAILMENT. 

which  an  ordinarily  careful  man  uses  of  his  own  things  under  similar 
circumstances. 

376.  By  Whom  Loss  is  Borne. — When  there  is  a  loss  of  property 
delivered  to  a  workman  for  service  to  be  performed  upon  it  and  the 
workman  is  not  at  fault,  the  loss  falls  upon  the  owner.     Indeed,  it 
seems  to  be  the  rule  that  the  loss  follows  the  ownership  of  the  prop- 
erty.    Whether  the  workman  could  recover  for  the  value  of  his  serv- 
ices already  rendered  is  not  altogether  settled.     When  the  workman 
is  employed  to  make  a  thing  out  of  his  own  material,  it  is  a  case  of 
sale  and  not  one  of  bailment. 

377.  Rights  of  Bailee. — If   a  workman  by  a  deviation  from  hia 
instructions  makes  his  work  valueless,  he  can  claim  no  compensation. 
If  the  article  be  still  of  some  use  and  be  received,  he  can  claim  the 
value  of  the  work.     If  the  deviation  be  important  and  the  materials 
have  lost  their  value  the  owner  may  abandon  them  and  recover  their 
value  from  the  workman.     If  the  deviation  makes  the  thing  more 
valuable  and  costly,  the  workman  cannot  collect  for  the  additional 
cost,  unless  the  change  were  assented  to. 

If  the  bailee  fails  to  complete  his  work  through  his  own  fault  his 
rights  will  depend  upon  the  nature  of  the  undertaking.  If  his  con- 
tract is  to  work  by  the  day  he  will  be  entitled  to  recover  what  his 
work  is  fairly  worth  after  deducting  all  damages  occasioned  by  his 
default.  If  his  work  is  done  under  an  entire  contract  the  perform- 
ance to  precede  the  payment  and  is  a  condition  thereof  then  he 
must  finish  the  work  before  he  is  entitled  to  payment. 

378.  Liability  of  Third  Person. — It  is  a  settled  principle  of  law 
that  if  one  contracts  to  render  personal  services  for  another,  for  a 
consideration,  any  third  person  who  maliciously  induces  or  compels 
the  letter  to  refuse  to  perform  such  services  is  liable  to  the  injured 
party.     This  rule  extends  impartially  to  every  grade  of  service. 

379.  Payment  by  Installments. — When  material  is  furnished  by 
the  bailor  and  the  services  of  the  bailee  are  to  be  paid  for  in  install- 
ments as  the  work  progresses  and  there  is  a  loss  after  one  or  more 
installments  have  been  paid,  the  bailor  loses  what  he  has  paid,  and 
the  bailee  loses  pay  for  that  portion  of  the  work  which  has  been  done 
but  not  accepted.     Houses  are  often  built  on  this  plan  and  the  ques- 
tion often  arises. 


HIRE    OF   CUSTODY.  147 

380.  Lien. — A  workman  employed  to  make  up  materials  or  to  alter 
or  repair  an  article  has  a  lien  upon  it  for  his  pay.  It  seems  that  he 
does  not  have  the  right  to  sell  it  but  only  the  right  to  retain  it.  It 
is  therefore  called  a  possessory  lien,  a  mere  passive  right  of  reten- 
tion. 


CHAPTER  XXXII. 
HIEE   OF   CUSTODY. 

381.  Definition. — Hire  of  custody  is  a  contract  for  the  hire  of  care 
and  attention  to  personal  property.     In  this  kind  of  bailment  there 
is  usually  no  labor  to  be  performed  in  reference  to  the  thing  bailed, 
but  the  custody  is  the  main  object. 

382.  Degree   of  Care. — This  contract  is  for  the  benefit  of  both 
parties,  hence  the  bailee  is  bound  to  use  ordinary  care,  and  is  liable 
for  ordinary  negligence. 

383.  Agistors. — An  agistor  is  one  who  takes  in  domestic  animals  to 
pasture.     He  may  take  such  animals  as  he  likes,  and  is  bound  to  give 
to  them  ordinary  care.     Should  any  loss  or  injury  occur  as  a  result  of 
his  not  using  proper  care,  he  will  of  course  be  liable.     He  must  also 
use  ordinary  skill  in  their  care.     He  has  no  lien  for  their  keepiiig 
unless  by  special  agreement.     Being  their  proper  custodian  he  can 
bring  an  action  in  his  own  name  against  any  one  interfering  with  his 
possession. 

384.  Warehousemen. — A  warehouseman  is  one  who  receives  goods 
or  merchandise  to  be  stored  for  hire.     He  must  use  ordinary  care, 
and  is  liable  for  any  neglect  on  his  part  to  do  so.     He  does  not 
insure  the  goods,  therefore  he  is  not  liable  if  they  perish,  provided 
he  has  not  been  guilty  of  negligence.     He  has  a  lien  upon  the  goods 
for  his  storage  charges,  but  he  cannot  retain  the  goods  for  a  general 
balance  due.     If  the  goods  are  claimed  by  another,  the  warehouse- 
man delivers  them  to  him  at  his  peril,  for  he  must  at  least  make 
satisfactory  account  to  the  bailor.     It  has  often  been  decided  in  all 


148  BAILMENT. 

similar  classes  of  bailment  that  when  a  loss  occurs  the  bailee  is  obliged 
to  explain  how  it  occurred,  after  which  the  burden  of  proving 
negligence  rests  on  the  bailor. 

385.  Wharfingers. — A  wharfinger  is  the  keeper  of  a  wharf  where 
goods  are  received  and  shipped  for  hire.     His  duties,  rights  and 
liabilities  are  in  most  respects  the  same  as  those  of  a  warehouseman. 

386.  Commission  Merchants. — Commission  merchants  and  all  sim- 
ilar agents,  being  bailees  for  hire,  are  required  to  take  ordinary  care 
of  all  goods  entrusted  to  them.     They  are  not  liable  for  any  loss  by 
fire  or  robbery,  or  from  internal  decay,  unless  it  was  occasioned  by 
their  lack  of  proper  care. 

387.  Hotelkeepers. — Hotelkeepers  are  bound  by  the  laws  of  bail- 
ment, and  on  account  of  the  peculiar  position  of  trust  which  they 
occupy,  and  their  relation  to  the  public,  they  are  held  to  a  stricter  lia- 
bility than  the  ordinary  bailee  for  hire.     In  this  respect  the  case  of 
hotelkeepers  is  an  exception  to  the  usual  rule  of  liability,  where  the 
bailment  is  for  the  benefit  of  both  parties. 

388.  Duties. — A  hotelkeeper  is  bound  to  accept  all  who  present 
themselves,  if  he  has  the  room,  but  he  may  refuse  a  disorderly  guest. 
It  is  his  duty  to  care  for  their  goods  with  proper  diligence. 

389.  Liabilities. — Instead  of  being  responsible  for  ordinary  care  he 
is  held  to  be  an  absolute  insurer  of  the  property  committed  to  his 
care,  except  as  to  damage  by  the  acts  of  God,  the  public  enemy,  and 
from  the  fraud  or  neglect  of  the  owner  himself.     The  hotelkeeper  is 
responsible  for  the  acts  of  his  servants,  and  also  for  those  of  his 
guests,  so  far  as  they  affect  other  guests.     But  he  is  not  responsible 
when  a  loss  occurs  through  a  guest's  own  servant,  or  one  who  came 
as  his  companion.     He  is  not  permitted  to  refuse  to  accept  the  goods 
of  his  guest  or  to  refuse  to  become  responsible  for  them,  but  he  may 
give  notice  to  his  guests  that  he  will  not  become  responsible  for  valu- 
ables, such  as  money  or  jewelry,  unless  delivered  to  him  to  be  placed 
in  the  safe.     If  a  servant  of  the  hotelkeeper  takes  the  luggage  of  a 
guest  to  carry  to  the  cars,  the  hotelkeeper  continues  responsible  for 
it  until  delivered  at  the  cars.     Whether  in  case  of  loss  the  burden 
lies  on  the  landlord  to  prove  proper  care,  or  whether  his  negligence 
is  presumed,  has  been  variously  decided,  some  States  holding  one  way 
and  some  another.     It  has  been  decided  in  Illinois  that  the  owner  of 


HIRE    OF   CARRIAGE.  149 

a  sleeping  car  was  not  liable  as  an  innkeeper  for  money  stolen  from 
a  passenger. 

390.  Rights  of  Landlord.  — While  the  landlord  is  obliged  to  receive 
all  proper  guests,  if  he  has  room,  yet  he  may  require  them  to  pay  in 
advance,  and  refuse  to  entertain  them  if  they  do  not.     He  has  a  lien 
upon  the  goods  of  his  guest  for  his  bill.     He  has  also  a  lien  upon 
horses  left  with  him  for  their  keep. 

391.  Who   is  a   Guest. — There  is  a  distinction  between  an  inn- 
keeper and  a  boarding  house  keeper.     An  innkeeper  holds  himself 
out  to  entertain  all  travelers.      The  keeper  of  a  boarding  house  usu- 
ally makes  contracts  for  a  definite  time.     A  guest  in  a  public  house 
comes  without  any  bargain  as  to  time,  and  may  go  when  he  pleases, 
paying  only  for  the  entertainment  which  he  actually  receives.     The 
length  of  time  he  may  remain  will  make  no  difference  as  to  the  rela- 
tion he  occupies — he  will  still  be  a  guest.     A  landlord  may  be  both 
an  innkeeper  and  a  boarding  house   keeper,  and  indeed  it   is  not 
unusual   for  him  to  maintain   both  relations  to  different  persons. 
The  statutes  of  most  States  have  regulated  both  inns  and  boarding 
houses,  and  when  they  have  done  so  the  common  law  requirements 
have  been  modified. 

HIRE   QF   CARRIAGE. 

392.  Introduction. — This  includes  that  large  class  of  contracts  by 
which  goods  or  chattels  are  to  be  transported  from  one  place  to 
another.     Those  who  transport  goods  for  others  are  called  carriers. 
The  law  designates  both  "private  carriers"  and  "common  carriers." 

393.  Private  Carriers. — A  private  carrier  is  one  who  occasionally 
carries  goods  or  chattels  for  others.     As  he  works  for  hire  he  is 
bound  to  use  only  ordinary  diligence  and  a  reasonable  exercise  of 
skill.     He  is  not  liable  if  the  goods  are  stolen  or  burned  or  if  they 
perish  from  their  own  internal  decay  unless  it  was  occasioned  by  a 
lack  of  proper  care  on  his  part. 

He  may  by  special  contract  enlarge  his  liability  even  to  the  extent 
of  warranty. 

COMMON  CARRIERS. 

394.  Definition. — A  common  carrier  is  one  whose  business  is  to 
transport  from  place  to  place  the  goods  or  person  of  any  one  who 
may  employ  him.      The  business  must  be  exercised  as  a  public 


150  BAILMENT. 

employment,  that  is,  he  must  hold  himself  out  as  ready  to  transport 
goods  or  passengers  as  a  business.  It  includes  railroads,  express  and 
steamboat  companies  as  well  as  expressmen,  street  car  companies  and 
omnibus  lines. 

Common  carriers  may  be  carriers  of  goods,  or  of  passengers,  or  of 
both.     We  shall  first  consider  the  common  carrier  of  goods. 

395.  Duties  and  Obligations. — The  common  carrier  is  obliged  to 
accept  all  goods  that  are  offered  to  him  for  transportation  without 
regard  to  whose  they  may  be.     In  this  regard  his  obligation  resem- 
bles that  of  the  innkeeper.     This  rule  is  a  result  of  the  public  nature 
of  his  employment.     He  is  liable  to  an  action  if  he  refuse  to  carry, 
but  he  may  demand  his  fees  in  advance.     He  may  refuse  if  his  car- 
riage be  already  full  or  if  the  goods  be  of  a  dangerous,  nature,  or  if 
they  are  not  such  as  he  carries  in  the  known  and  usual  course  of  his 
business.     At  common  law  he  is  not  under  obligations  to  charge  all 
persons  alike.     He  may  show  special  favor  to  certain  individuals  by 
taking  their  freight  at  an  unreasonably  low  rate  without  being  com- 
pelled to  do  the  same  by  others.     He  is  entitled  to  a  reasonable 
recompense  from  all.     He  is  bound  to  transport  with  reasonable  dis- 
patch, and  by  the  prescribed  or  customary  route. 

He  is  also  bound  to  take  notice  if  some  goods  are  specially  marked, 
as:  -"handle  with  care,"  "glass,"  etc. 

396.  May  Refuse  Freight. — A  carrier  may  refuse  transportation 
in  a  particular  case,  on  the  ground  that  his  facilities  are  inadequate. 
He  may  also  refuse  transportation  if  the  property  at  the  particular  time 
will  be  exposed  on  his  route  to  extraordinary  danger  or  to  popular 
rage,  or  if  he  is  under  coercion  and  cannot  freely  exercise  his  voca- 
tion.    A  carrier  is  not  bound  to  receive  goods  from  one  who  is 
neither  their  owner  nor  the  owner's  agent,  for  he  must  not  connive 
at  a  wrong.     If  he  refuse  wrongfully  to  receive  goods,  he  is  liable 
to  the  consignor. 

397.  Liability. — The  liability  of  the  common  carrier  owing  to  its 
public  nature  is,  like  that  of  an  innkeeper,  very  strict.     He  is  held 
to  be  an  absolute  insurer  of  the  safety  of  the  goods,  the  only  excep- 
tions being  against  the  "acts  of  God"  or  the  "public  enemies."     The 
acts  of  God  are  such  as  floods,  lightning  or  tempest  and  the  public 
enemies  are  those  with  whom  the  nation  itself  is  at  war  and  not  merely 
robbers  and  thieves. 


COMMON   CARRIERS.  151 

This  responsibility  begins  as  soon  as  the  goods  are  delivered  and 
received  by  the  carrier. 

398.  Liability  Limited. — In  some  States  a  common  carrier  is  per- 
mitted to  limit  his  common  law  liability  by  a  general  notice  which  is 
usually  incorporated  in  the  receipt  or  bill  of  lading.     In  others  he 
can  so  limit  his  liability  if  it  be  brought  especially  to  the  shipper's 
notice  and  agreed  to  by  him  while  in  others  he  cannot  limit  it  at  all. 

399.  When*  Liability  Ends. — When  there  remains  no  further  duty 
to  be  done  by  the  carrier  his  liability  ceases.     It  is  generally  the  cus- 
tom for  carriers  to  notify  the  consignee  of  the  arrival  of  the  goods 
and  when  such  is  the  custom  it  should  be  observed.     After  the  lapse 
of  a  sufficient  time  the  carrier  may  put  the  goods  in  a  warehouse, 
when  his  liability  will  be  that  of  a  warehouseman  for  ordinary  care 
instead  of  a  carrier.     But  if  he  is  obliged  to  deliver  them  at  the  con- 
signee's place  of  business  or  domicile,  he  must  tender  them  there 
before  he  can  claim  ordinary  liability. 

400.  Delivery. — Where  and  when  delivery  should  be  made  depends 
altogether  upon  the  custom  of  the  place  and  the  circumstances  of  the 
case.     In  large  cities  it  is  customary  for  express  companies  to  make 
actual  delivery  either  at  the  house  or  place  of  business  of  the  con- 
signee.    Where  such  is  the  custom  a  compliance  with  it  is  one  of  the 
duties  of  the  company.     The  delivery  must  be  to  the  consignee  or 
owner,  or  his  agent,  and  the  common  law  rule  is  that  goods  must  be 
carried   to  his  residence  or  place  of  business,  and  it  will  not  be 
sufficient  if  they  be  left  at  the  public  depot  of  the  carrier,  unless 
there  be  a  well-established  usage  to  this  effect.     But  this  usage  is 
now  so  common  with  railroads  that  there  is  little  doubt  but  that  it 
is  now  the  law.     The  company  is  of  course  liable  for  delivery  to  the 
wrong  person,  and  hence  they  often  require  the  consignee,  if  unknown 
to  them,  to  be  identified. 

401.  Lien. — The  carrier  is  entitled  to  a  lien  on  the  goods  for  his 
charges  and  for  any  charges  advanced  to  other  carriers.     This  lien 
he  can  enforce  in  any  of  the  ways  in  which  a  party  enforces  a  lien  on 
personal  property.     To  protect  himself  he  may  inquire  into  the  title 
of  any  one  who  presents  goods  for  transportation,  and  thus  save  him- 
self from  liability  to  the  owner  from  whom  the  goods  have  been 
stolen. 


152  BAILMENT. 

402.  The  Carrier  of  Passengers  is  not  liable  for  them  in  the  same 
way  in  which  a  carrier  of  goods  is  liable.     He  is  bound  to  make  no 
distinction  among  those  who  offer  themselves  for  transportation.     A 
common  carrier  of   passengers  is  liable  only  where  the  injury  has 
arisen  from  the  negligence  of  the  carrier.     He  is  not  an  insurer  of 
passengers,  but  is  liable  for  the  results  of  the  slightest  negligence. 

A  railroad  company  is  bound  to  provide  a  safe  roadway  and  suit- 
able carriages  and  to  keep  all  in  good  condition.  Its  trains  must  be 
carefully  handled  and  in  general  the  greatest  care  and  watchfulness 
must  be  exercised.  It  will  be  no  excuse  that  the  wrongful  act  of  an 
agent  was  willful.  The  reason  for  the  difference  in  the  liability  of  a 
carrier  of  passengers  and  a  carrier  of  goods  is  that  the  carrier  of 
goods  has  entire  control  over  them  but  passengers  must  be  left  much 
freedom  of  motion. 

403.  Rights. — The  carrier  of  passengers  has  a  right  to  prescribe 
reasonable  rules    in    reference   to    receiving  and    handling    them. 
He  may  insist  on  the  fare  in  advance  and  that  the  passenger  show  his 
ticket.     If  he  refuses  to  do  either  the  carrier  may  eject  him,  using, 
however,  no  more  force  than  is  necessary,  and  not  while  the  car  is  in 
motion. 

The  carrier  may  refuse  any  who  are  disorderly.  In  some  States 
conductors  of  trains  are  clothed  with  police  powers  for  the  purpose 
of  preserving  peace  on  their  trains. 

404.  Baggage. — In  this  country  the  railroads  are  required  to  trans- 
port not  only  the  passenger  but  his  necessary  baggage.     This  may 
include  anything  of  a  personal  nature  which  the  passenger  may  need 
for  his  convenience  and  comfort.     For  the  safety  of  this  baggage  the 
carrier  is  liable  for  the  slightest  negligence. 


PRACTICAL   REVIEW.  153 


PRACTICAL  REVIEW. 

I.  A  owes  B  a  note  due  Aug.  30,  1894.     To  secure  it  A  pledges  with  B  a 
note  made  by  D  to  A's  order,  payable  Jan.  1,  1895.     A  fails  to  pay  his  note 
when  due.     What  can  B  do? 

II.  A  was  a  guest  at  a  hotel  and  had  a  watch  stolen  from  his  room.     Can 
he  recover  its  value? 

III.  A  brings  an  action  of  replevin  against  B  for  chattels.     B's  defense  is 
that  he  has  a  lien  upon  the  chattels  which  were  pledged  with  him  by  C. 
Suppose  these  were  stolen  from  A,  could  he  recover  them  from  B? 

IV.  If  A  borrow  of  B  $50,  and  give  him  in  pledge  as  security  a  watch 
worth  $100,  what  can  B  do  to  make  his  claim  out  of  the  security? 

V.  If  A  hire  one  horse  and  borrow  another,  both  from  B,  and  both  are 
killed  by  the  same  accident,  may  B  be  liable  for  one  and  not  the  other? 

VI.  A  traveler  on  a  railroad  checked  his  trunk.     The  trunk,  instead  of 
containing  wearing  apparel,  is  filled  with  fragile  articles  intended  for  sale. 
These  are  broken  by  the  railroad  employees  in  handling.     Is  the  company 
liable  for  them? 

VII.  B,  a  physician,  was  on  a  train  that  was  wrecked,  and  undertook, 
gratis,  to  attend  a  wounded  person.     If  he  treats  him  improperly  is  he  liable 
for  malpractice. 

VIII.  A  makes  a  special  deposit  with  his  banker  of  ten  United  States 
bonds.     The  banker  agrees  to  keep  them  in  his  vault  along  with  his  own 
securities,  and  without  hire.     The  bonds  are  stolen  by  an  employee  of  the 
bank  without  negligence  of  the  banker  himself.     Is  he  liable  to  A? 

IX.  A  railroad  unloads  merchandise  at  the  end  of  its  transportation,  in 
one  of  its  depots,  and  immediately  afterwards  the  depot  and  contents  are 
destroyed  by  fire.     Is  the  company  liable? 

X.  A  railroad  prints  in  its  freight  receipts  a  provision  that  it  will  not  be 
liable  in  certain  contingencies  where  it  would  be  liable  by  the  common  law. 
How  will  this  affect  A  who  ships  by  this  railroad,  and  takes  its  receipt  for 
the  goods? 

XI.  A  agreed  to  carry  gratuitously  a  cask  of  wine  for  B  to  market.     In 
unloading  the  cask  it  fell,  and  some  of  the  wine  spilled.     On  what  does  A's 
liability  depend? 

XII.  A  took  a  valuable  manuscript  to  a  printer  to  have  it  set  in  type. 
The  copy  was  distributed  to  different  workmen.     The  building  and  contents 
were  destroyed  by  fire.     Was  the  printer  liable  for  its  value  to  A? 

XIII.  A  sold  B  some  grain  stored  in  C's  elevator,  and  endorsed  the  ware- 
house receipt.     When  B  sends  for  the  grain  C  refuses  to  deliver  it  until  the 
storage  is  paid  for.     Has  he  a  right  to  retain  it? 

XIV.  A  is  a  common  carrier,  and  is  offered  goods  for  transportation  by 
B,  but  refuses  them  because  there  is  a  strike  on  his  line.     Has  he  a  right  to 
refuse  them? 

XV.  Suppose  in  the  above  case  they  are  consigned  to  C ;  can  C  bring  an 
action  against  A  for  his  refusal  to  receive  the  goods? 


164  BAILMENT. 


REVIEW  QUESTIONS. 

1.  What  does  the  law  of  bailment  include?  2.  Define  bailment.  3.  Name 
the  parties  to  a  bailment.  4.  How  many  classes  of  bailment  are  there? 
5.  Name  and  define  the  different  degrees  of  care.  6.  Name  the  different 
kinds  of  negligence.  7.  Give  a  rule  for  determining  the  care  necessary  to 
free  the  bailee  from  liability.  8.  Define  deposit.  9.  For  whose  benefit  does 
it  exist?  10.  What  care  must  the  bailee  use?  11.  What  are  the  duties  of 
the  bailee?  12.  Can  the  bailee  use  the  deposit?  13.  Name  the  rights  of  the 
bailee.  14.  Define  commission.  15.  For  whose  benefit  is  it?  16.  What  care 
must  the  bailee  use?  17.  What  skill  must  the  bailee  bring  to  bear?  18.  Has 
the  bailee  a  lien  on  the  property,  and  if  so  for  what?  19.  What  are  the 
bailee's  duties?  20.  Define  gratuitous  loans.  21.  For  whose  benefit  is  it? 
22.  What  care  must  be  used?  23.  Can  the  bailee  use  the  property?  24.  Can 
he  loan  it?  25.  What  expenses  must  the  bailee  bear?  26.  If  the  thing  perish 
what  will  determine  the  bailee's  liability?  27.  When  and  how  can  the 
leader  obtain  possession  of  the  property?  28.  What  is  the  bailee's  liability 
if  he  keeps  the  property  beyond  the  time  for  which  it  was  loaned?  29. 
Define  pledge.  30.  For  whose  benefit  is  it?  31.  What  degree  of  care  must 
be  used?  32.  Can  a  pledge  be  held  for  obligations  not  yet  incurred?  33. 
May  the  debt  be  for  anything  but  money?  34.  How  far  is  delivery  essential 
to  a  pledge?  35.  How  are  negotiable  notes  pledged?  36.  May  the  pledgee 
use  the  property?  37.  What  property  has  the  pledgee  in  the  property?  38. 
What  is  the  pledgee's  measure  of  damage  against  third  persons  who  dis- 
possess him?  39.  Can  one  sell  property  he  has  pledged?  40.  How  could  he 
deliver  it?  41.  What  property  does  one  get  in  property  wrongfully  pledged? 
42.  How  does  a  pledge  differ  from  a  mortgage?  43.  Name  the  different 
ways  a  pledgee  may  realize  on  a  pledge  when  it  is  in  default.  44.  How  can 
negotiable  paper  be  realized  on?  45.  Into  what  subdivisions  is  hire  divided? 
46.  What  is  the  duty  of  the  letter?  47.  How  can  the  hirer  use  the  thing? 
48.  What  is  his  liability  if  he  use  the  thing  otherwise  than  intended?  49. 
What  degree  of  care  must  be  used?  50.  In  case  of  an  animal,  what  are  the 
hirer's  duties?  51.  How  does  hire  of  services  differ  from  commission?  52. 
What  are  the  duties  of  a  workman?  53.  What  skill  must  he  use?  54.  In 
case  of  the  destruction  of  the  property,  who  is  the  loser?  55.  State  the  rule 
in  this  regard.  56.  If  the  workman  deviate  from  his  instructions  what  are 
the  rights  of  the  parties?  57.  If  he  fail  to  complete  his  work  what  are  the 
rights  of  the  parties?  58.  What  is  the  rule  as  to  loss  in  case  of  payment  by 
installments?  59.  How  far  is  one  liable  who  induces  a  workman  to  quit  his 
contract?  60.  When  has  a  workman  a  lien  on  the  property?  61.  What  is 
an  agistor?  62.  What  are  his  duties  and  liabilities?  63.  What  is  a  ware- 
houseman? 64.  What  are  his  duties  and  liabilities?  65.  How  do  commission 
merchants  become  bailees?  66.  What  is  an  inn  keeper?  67.  What  are  his 
duties?  68.  What  are  his  liabilities?  69.  What  are  his  rights?  70.  Who  is 
a  guest?  71.  What  is  a  private  carrier?  72.  What  is  a  common  carrier? 
73.  What  are  his  duties  and  obligations?  74.  May  he  ever  refuse  freight? 
75.  If  so  under  what  circumstances?  76.  What  are  his  liabilities?  77.  Can 
he  limit  by  agreement  his  liability?  78.  When  does  his  liability  end?  79. 
When  and  where  should  he  make  delivery?  80.  What  lien  has  he?  81. 
How  does  the  liability  of  a  carrier  of  passengers  differ  from  that  of  freight? 
82.  What  care  must  be  used? 


AGENCY.  155 


AGENCY. 


CHAPTER  XXXIII. 

405.  Definition. — Agency  is  the  relation  founded  upon  the  express 
or  implied  contract  of  two  parties  by  virtue  of  which  one  party  is 
employed  and  authorized  to  represent  and  act  for  the  other  in  deal- 
ings with  third  persons.     The  one  who  is  thus  authorized  to  act  is 
called  the  agent,  and  the  one  for  whom  he  acts  is  called  the  principal. 

406.  Classes    of  Agents. — Agents  are  divided  into  a  variety  of 
classes,  based  upon  the  extent  or  nature  of  their  authority,  and  the 
character  of  their  undertakings.     The  most  important  classification 
is  in  reference  to  the  extent  of  their  authority,  and  is  into  general 
and  special  agents.     A  general  agent  is  one  who  is  empowered  to 
transact  all  of  the  business  of  his  principal  of  a  particular  kind,  or 
at  a  particular  place.     A  special  agent  is  one  authorized  to  act  only 
in  a  specific  transaction.     This  distinction,  as  we  shall  see,  is  an 
important  one. 

407.  Distinction. — A  special  agency  being  created  for  a  particular 
transaction,  is  in  its  nature  limited,  and  implies  limitations  of  power. 
Of  these  limitations,  third  persons  dealing  with  agents  must  inform 
themselves,  unless  by  the  principal's  acts  they  might  fairly  infer  that 
such  limitations  were  not  imposed.    A  general  agency  is  in  its  nature 
general  and  unrestricted,  except  by  custom  and  necessity.     In  other 
words,  it  has  been  said  that  a  person  dealing  with  a  special  agent  is 
bound  to  observe  that  he  is  a  special  agent,  and  to  know  the  extent 
of  his  authority,  for  if  a  special  agent  exceed  his  authority  the  prin- 
cipal is  not  bound.     But  if  a  general  agent  exceed  his  authority  the 
principal  is  bound,  provided  the  agent  acted  within  the  ordinary  and 
usual  scope  of  the  business  he  was  authorized  to  transact. 

408.  Who  May  be  an  Agent. — Any  person  who  is  competent  to 
contract  generally,  is  competent  to  act  as  an  agent.     The  rule  goes 
even  further,  and  renders  many  competent  as  agents  who  could  not 


156  AGENCY. 

contract  for  themselves.  The  reason  for  this  is  that  many  persons 
are  competent  to  execute  what  they  would  be  incompetent  to  conceive 
or  direct.  Thus  an  infant  above  seven  years  may  be  an  agent  for 
many  purposes,  and  even  at  common  law  a  wife  might  be  an  agent 
for  her  husband.  Corporations  and  partnerships  are  frequently 
organized  for  the  purpose  of  acting  as  agents  for  others. 

409.  Who  Cannot  be  an  Agent.  — One  cannot  be  an  agent  if  in  his 
duties  or  his  relations  to  others,  he  would  be  compelled  to  assume 
inconsistent  obligations.     He  owes  a  loyalty  to  the  interests  of  his 
principal  and  he  cannot  discharge  the  duties  of  his  position  when  his 
own  interests  are  adverse.     He  cannot,  unknown  to  his  principal, 
act  for  both  parties. 

A,  a  real  estate  agent,  is  requested  by  B  to  find  and  purchase  for  him  a 
piece  of  land.  A,  knowing  that  C  is  the  owner  of  such  property,  secures 
from  him  the  agency  for  its  sale.  He  then  represents  to  B  that  he  has 
bought  C's  land,  and  to  C  he  represents  that  he  has  sold  his  land  to  B. 
There  is  no  sale. 

An  agent  for  a  buyer  contracts  to  employ  his  best  skill  to  secure 
the  property  at  as  low  a  price  as  possible,  and  an  agent  for  the  seller 
contracts  to  get  the  best  price  possible.  These  duties  are  absolutely 
inconsistent,  and  one  or  the  other  must  be  neglected. 

410.  How  Agents  are  Appointed. — It  is  the  general  rule  of  law 
that  no  one  can  become  the  agent  of  another  except  by  the  will  of 
the  principal.     But  to  this  rule  there  is  an  exception  when  the  agency 
is  created  by  law.     An  example  of  this  is  where  a  husband  turns  his 
wife  away  through  no  fault  of  hers,  when  she  may  pledge  his  credit 
for  necessaries,   even  against  his  will.     The  will  of  the  principal, 
mentioned  in  the  general  rule  above,  may  be  expressed  in  a  variety 
of  ways.     It  may  be  by  word  of  mouth,  by  a  written  instrument,  or 
it  may  be  by  specialty.     In  many  cases  it  may  be  implied  from  the 
acts  of  the  principal,  or  the  agent's  previously  unauthorized  acts  may 
be  adopted  and  ratified. 

411.  Nature  of  Appointment. — The  larger  proportion  of  agencies 
may  be,  and  are,  created  by  parol,  but  the  statutes  of  many  States1 
require   that  an   agent  created  to  make  certain  contracts  must  be 
appointed  in  writing.     This  class  of  contracts  usually  embraces  those 
included  in  the  Statute  of  Frauds.     The  appointment  must  always 
be  of  as  high  a  nature  as  the  trust  to  be  executed,  that  is,  if  the 

'Alabama,  Arkansas,  California,  Colorado,  Illinois,  Michigan,  Missouri,  Nebraska,  New 
Hampshire,  New  Jersey,  Ohio,  Pennsylvania. 


POWER    OF    ATTORNEY.  157 

instrument  to  be  executed  by  the  agent  must  be  under  seal,  the 
authority  to  execute  it  must  also  be  under  seal.  In  the  absence  of 
any  statutory  regulation  to  the  contrary,  unless  the  instrument  to  be 
executed  is  to  be  under  seal,  authority  to  execute  a  written  instru- 
ment may  be  conferred  orally,  for  an  oral  authority  is  of  as  high  a 
nature  as  a  written.  The  formal  manner  of  appointing  an  agent  is 
by  power  of  attorney.  This  is  an  instrument  under  seal  and  is  the 
authority  that  must  be  given  when  the  agent  is  to  execute  an  instru- 
ment under  seal.  If  it  be  for  a  conveyance  of  real  estate  it  should 
be  so  executed  as  to  entitle  it  to  be  admitted  for  record.  In  those 
States  where  acknowledgment  is  necessary  for  that  purpose,  it  must 
also  be  acknowledged. 


ail  flfcetl  bB  ttbe0e  presents,  That  I,  the  undersigned,  George 
H.  McElvain,  of  the  City  of  Galesburg,  County  of  Knox  and  State  of  Illinois, 
have  this  day  made,  constituted  and  appointed,  and  do  by  these  presents 
make,  constitute  and  appoint  L.  H.  Young,  of  the  City  of  Chicago,  in  the 
County  of  Cook  and  State  of  Illinois,  my  true  and  lawful  attorney,  for  me 
and  in  my  name,  to  sell  and  dispose  of,  absolutely,  in  fee  simple,  the  following 
described  lot,  tract  or  parcel  of  land,  or  any  part  thereof,  situate,  lying  and 
being  in  the  County  of  Cook,  and  State  aforesaid,  to  wit  :  Lot  10,  of  Block  8, 
in  Cooper's  Addition  to  the  city  of  Evanston,  according  to  the  recorded  plat 
thereof,  for  such  price  or  sum  of  money,  and  to  such  person  or  persons  as  he 
shall  think  fit  and  convenient  ;  and  also  for  me  and  in  my  name,  and  as  my 
act  and  deed,  to  sign,  execute,  acknowledge  and  deliver  such  deed  or  deeds, 
and  conveyance  or  conveyances,  for  the  absolute  sale  and  disposal  thereof,  or 
of  any  part  thereof,  with  such  clause  or  clauses,  covenant  or  covenants,  and 
agreement  or  agreements,  to  be  therein  contained,  as  my  said  attorney  may 
think  fit  and  expedient  ;  hereby  ratifying  and  confirming  all  such  deeds,  con- 
veyances, bargains  and  sales  which  shall  at  any  time  hereafter  be  made  by 
said  attorney  touching  or  concerning  the  premises. 

In  Testimony  Whereof,  I  have  hereunto  set  my  hand  and  seal,  on  this 
tenth  day  of  August,  A.  D.  1901. 

GEORGE  H.  McELVAIN.   [SEAL.] 

POWER  OF  ATTORNEY. 

A  power  of  attorney  should  be  acknowledged,  and  in  some  cases,  as 
in  the  above  form,  it  should  also  be  recorded. 

412.  When  Agency  is  Implied.  —  Whenever  a  person  has  held  out 
another  as  his  agent,  or  has  knowingly  permitted  such  other  to  act 
as  his  agent,  or  when  his  acts  have  been  such  as  to  reasonably  war- 
rant the  presumption  that  such  other  is  his  agent,  he  will  not  be  per- 
mitted to  deny  it  to  the  injury  of  third  persons.  In  these  cases  the 
agent  has  apparent  authority. 


158  AGENCY. 

A  stood  by  and  permitted  B  to  make  a  contract  for  him.  He  afterwards 
wished  to  repudiate  the  contract,  claiming  want  of  authority  on  B's  part, 
but  was  not  allowed  to  do  so,  for  B's  authority  was  implied. 

A,  knowing  that  B  was  collecting  money  on  his  account,  made  no  objec- 
tion. When  B  failed  to  pay  it  over,  A  attempted  to  again  collect  it  from 
his  debtor,  claiming  that  B  had  no  authority.  It  was  decided  that  B  had 
implied  authority. 

413.  Notice  to  Agent. — Whatever  comes  to  the  notice  of  the  agent 
in  reference  to  the  principal's  business,  is  deemed  to  be  notice  to  the 
principal.  The  principal  is  also  presumed  to  know  what  the  agent 
has  done  while  acting  for  him. 


CHAPTER   XXXIV. 
AGENCY— CONTINUED. 

414.  Introduction. — As  we  have  previously  remarked,  there  are 
three  persons  concerned  in  the  law  of  agency,  viz. :  Agent,  principal 
and  third  person.     These  each  have  rights,  duties  and  liabilities  to 
the  other  two.     Rights  will  not  be  discussed,  for  the  duties  and 
liabilities  of  one  party  are  generally  reciprocally  the  rights  of  the 
other.     For  convenience  these  duties  and  liabilities  will  be  discussed 
in  the  following  order : 

I.  Duties  and  Liabilities  of  Agent.  •<  ' 

II.  Duties  and  Liabilities  of  Principal.  j*'  ToThird  Person. 

III.  Duties  and  Liabilities  of  Third  Person.       J  *•  To  ASent- 

(2.  To  Principal. 

DUTIES  OF  AGENT  TO  PRINCIPAL. 

415.  Agent  Must  be  Loyal. — The  agent  must  be  loyal  to  his  trust. 
He  must  not  have  personal  interests  that  are  adverse  to  his  princi- 
pal's.    An  agent  authorized  to  purchase  property  cannot  become  the 
purchaser  himself,  and  if  he  does  he  will  be  held  to  hold  it  as  a 
trustee  for  his  principal. 

A,  a  confidential  agent  of  the  lessee  of  a  theatre,  shortly  before  his  prin- 
cipal's lease  expired,  secretly  procured  a  lease  of  the  theatre  for  a  new  term 
to  himself.  The  court  decided  the  lease  was  procured  in  violation  of  the 
agent's  duties,  and  that  he  held  it  for  his  principal. 


DUTIES   OF   AGENT  TO    PRINCIPAL.  159 

All  profits  made  in  the  course  of  the  agency  belong  to  the  prin- 
cipal. It  matters  not  whether  such  profit  be  the  result  of  the  per- 
formance or  violation  of  the  agent's  duty. 

416.  Agent  Must  Obey  Instructions. — He  must  obey  all  reasonable 
and  lawful   instructions,  and   should   he  fail   to  do  so,  and  a  loss 
occurs   thereby,  he   will   be  liable.     He  cannot,  however,   be  held 
responsible  for  refusal  to  perform  illegal  or  immoral  acts.     He  may 
also  be  excused  when  a  sudden  emergency  arises,  which  will  not  per- 
mit of  delay  for  communication  with  the  principal.     In  the  absence 
of  any  positive  instructions  to  the  contrary,  the  agent  will  be  justi- 
fied in  conforming  to  established  usages  and  customs.     The  burden 
of  proving  disobedience  of  instructions  lies  on  the  principal. 

417.  Agent  Must  Not  be  Negligent. — The   question  of  the    care 
that  the  agent  is  bound  to  take  of  his  principal's  property,  we  have 
already  discussed  under  the  head  of  bailment.     In  addition  to  this 
the  agent  must  use  care  and  skill  in  the  transaction  of  the  principal's 
business.     When  the  principal  is  made  liable  through  the  negligence 
of  his  agent,  he  can  collect  in  turn  from  the  agent  the  amount, 
including  costs. 

A  was  instructed  by  his  principal,  B,  to  secure  an  insurance  policy  of 
$1,000  on  a  certain  house.  A  neglected  to  do  so,  and  the  house  burning 
down,  he  was  held  liable  for  the  $1,000,  less  the  premium. 

When  a  paper  due  at  a  distant  point  is  left  at  a  bank  for  collection, 
and  it  is  forwarded  to  a  local  bank,  there  is  a  conflict  of  authority  as 
to  whose  agent  the  local  bank  is.  The  question  really  is,  is  the 
transmitting  bank  liable  for  the  neglect  of  the  correspondent  bank 
in  making  the  collection  and  transmitting  the  proceeds,  or  is  the 
correspondent  bank  liable  directly  to  the  owner?  The  former  is  held 
in  some  States1  and  the  latter  in  others.2 

418.  Agent  Must  Account   for   Money  and  Property. — The  agent 
is   bound  to  account  to   his  principal   for  all  money  and  property 
which  may  come  into  his  hands  during  the  agency  and  by  virtue  of 
it.     As  has  been  remarked,  all  profits  which  result  from  transactions 
either  within  or  beyond  the  scope  of  the  agent's  authority,  belong  to 
the  principal.     For  this  purpose  it  is  the  agent's  duty  to  keep  correct 
accounts.     It  is  also  his  duty  to  keep  the  principal's  property  and 
funds  separate  from  his  own,  and  if  he  does  so  commingle  them  that 

1  New  York,  Michigan,  Ohio,  New  Jersey,  Montana  and  Indiana. 

*  Massachusetts,  Connecticut,  Maryland,  Illinois,  Wisconsin,  Iowa,  Mississippi,  Mis- 
souri, Tennessee,  Pennsylvania  ana  Louisiana. 


160  AGENCY. 

he  cannot  discriminate  between  the  two,  all  such  property  and  funds 
belong  to  the  principal.  In  case  it  becomes  necessary  for  an  agent  to 
deposit  his  principal's  funds  in  a  bank,  if  he  would  escape  personal 
liability  in  case  of  the  failure  of  the  bank,  he  should  deposit  it  in  his 
principal's  name  in  a  bank  of  good  credit. 

419.  Agent  to  Give  Notice. — It  is  the  duty  of  the  agent  to  give 
his  principal   reasonable  and   timely  notice  of  every  material  fact 
which  would  be  necessary  for  the  principal  to  know  to  protect  his 
interests. 

DUTIES  OF  AGENTS  TO  THIRD  PERSONS. 

420.  Liability. — While  an  agent's  duties,  as  such,  are  to  his  prin- 
cipal, yet  in  the  performance  of  those  duties  he  is  bound  to  exercise 
a  due   regard  for   the   rights  of  others.     It   is  said  that  no  man 
increases  or  diminishes  his  obligation  to  strangers  by  becoming  an 
agent.     He  is  liable  in  the  transaction  of  his  own  business  for  any 
injury  to  others  resulting  from  his  fraud  or  negligence.     So  too,  in 
transacting  his  principal's  business,  if  he  be  negligent  he  is  person- 
ally responsible  for  the  result.     It  matters  not  that  he  was  proceed- 
ing according  to  instructions,  for  no  one  can  confer  upon  another 
authority  to  commit  a  fraud,  or  do  an  unlawful  act.     The  principal 
also,  in  some  cases,  may  be  liable.     The  agent  is  liable : 

1.  When  he  exceeds  his  authority. 

2.  When  the  principal  is  unknown. 

3.  When  the  agent  contracts  personally. 

4.  When  it  is  the  custom  to  become  personally  responsible. 

421.  When  he  Exceeds  his  Authority. — No  one    is  supposed  to 
know  so  well  as  the  agent  himself  what  his  authority  is.     He  may 
bind  the  principal,  but  when  he  exceeds  his  authority  he  will  btf 
bound  himself,  and  it  matters  not  that  he  acted  in  good  faith. 

422.  When  the  Principal  is  Not  Known. — The  agent  is  made  per 
sonally  responsible  in  this  case,  because  the  contract  must  have  beetf 
entered  into  on  account  of  his  responsibility. 

A  committee  appointed  by  a  political  meeting  ordered  a  public  dinner.  It 
was  held  that  the  members  of  the  committee  were  personally  responsible  for 
the  cost  of  the  dinner. 

423.  When  Agent  Contracts  Personally. — Often,  for  the   sake  of 
his  interest  in  the  contract,  the  agent  agrees  to  become  personally 


LIABILITIES   OF   PBINCIPAL  TO   AGENT.  161 

liable.  He  may  also  become  responsible  by  his  failure  to  use  apt 
words  in  the  contract,  and  thus,  while  intending  to  bind  the  prin- 
cipal, may  really  bind  himself,  as  signing  a  note  C.  D.,  agent  of  A. 
B.,  instead  of  A.  B.,  by  C.  D.,  his  agent.  See  sec.  141. 

424.  When  the  Agent  has  Received   Money. — When   money   has 
been  paid  to  an  agent,  through  mistake,  by  a  third  person,  and  he 
is  notified  of  the  mistake,  and  afterwards  turns  it  over  to  the  prin- 
cipal, he  is  liable,  but  if  he  paid  it  before  notice,  he  is  not  liable.     So 
when  an  agent  receives  money  to  be  paid  over  on  the  happening  of  a 
certain  contingency,  if  he  pays  it  over  to  the  wrong  person  before 
the  happening  of  the  contingency,  he  is  responsible  to  the  rightful 
owner. 

425.  Public  Agents. — The  duties  of  a  public  officer  are  prescribed 
by  law,  which  every  one  is  presumed  to  know.       Consequently,  a 
public  officer  does  not  become  personally  liable  when  he  exceeds  his 
authority.     While  this  is  the  general  rule,  there  are  many  cases  when 
he  will  be  responsible,  and  this  depends  solely  on  the  circumstances 
of  each  case.     It  is  said  that  whenever  the  law  imposes  on  an  officer 
ministerial  duties,  in  which  a  private  individual  has  a  special  and 
direct  interest,  the  officer  is  liable  to  such  individual  for  his  failure 
or  neglect  to  perform  them  properly. 


CHAPTER   XXXV. 
LIABILITIES  OF  PEINCIPAL  TO  AGENT. 

426.  Payment  of  Compensation. — One  of  the  most  important 
claims  that  the  agent  has  upon  the  principal  is  for  compensation. 
The  amount  may  be  expressly  agreed  upon,  or  it  may  be  agreed  that 
it  shall  be  determined  in  a  certain  way,  as  a  certain  per  cent  of 
the  business  done.  There  are  also  cases  where  the  promise  to  pay 
any  compensation  must  be  express,  for  it  will  not  be  presumed,  as 
where  the  parties  are  near  relatives,  or  members  of  the  same  family. 

No  recovery  can  be  had  for  services,  however  valuable,  if  they  have 
been  rendered  without  the  express  or  implied  request  of  the  principal. 
But  where  a  party  knowingly  and  without  objection  permits  another 


162  AGENCY. 

to  render  service  for  him,  the  law  implies  a  promise  to  pay  what  it  is 
reasonably  worth. 

427.  Amount. — It  is  possible  for  the  parties  to  agree  that  the  full 
performance  of  the  duty  shall  be  a  condition  precedent  to  the  right 
to   recover   any    compensation.      But   if   this   full   performance  be 
excused  or  prevented  by  the  principal,  the  agent  will  still  be  entitled 
to  his  commission,  if  he  has  done  all  that  is  necessary  on  his  part. 
If   the   agency  be   terminated   by   the  sickness  of  the  agent,  he  is 
entitled  to  recover  the  reasonable  value  of  his  services  up  to  the  time 
of  his  incapacity.     This  is  the  rule,  even  though  the  contract  be  to 
perform  a  certain  service  before  he  is  entitled  to  any  compensation. 
Where  the  agent  is  employed  at  a  fixed  salary,  and  additional  duties 
are  imposed  on  him,  he  cannot  ordinarily  recover  extra  compensation 
in  the  absence  of  a  promise  to  pay  them. 

428.  Right  of  Recoupment.  —  The  principal  has  the  right  to  recoup 
any  damages  he  may  have  suffered  at  the  agent's  hands,  out  of  his 
compensation.     But  both  the  claim  for  damages  and  the  compensation 
must  arise  out  of  the  same  transaction.     A  railway  company  may 
recoup  from  a  conductor's  wages  damages  resulting  from  a  collision 
caused  by  his  negligence. 

429.  Right   of  Reimbursement. — It   is    the    principal's   duty  to 
reimburse  the  agent  for  all  his  advances  and  for  expenses,  incurred 
in  the  course  of  the  agency,  which  were  for  the  benefit  of  the  prin- 
cipal.    They  must  not  however,  be  the  result  of  the  agent's  negli- 
gence, neither  will  they  be  allowed  where  the  agent  makes  a  contract 
to  perform  a  certain  service  for  a  gross  sum. 

430.  Right  of  Indemnity. — If  in  the  performance  of  a  lawful  act 
for  the  principal,  the  agent  invades  the  rights  of  others,  the  loss 
should  fall  upon  the  principal,  and  not  the  agent. 

An  agent,  by  direction  of  his  principal,  cut  timber  upon  the  land  of  a 
third  person,  which  land  the  agent  supposed  belonged  to  the  principal.  He 
was  sued  for  trespass,  but  recovered  in  turn  from  his  principal. 

431.  Agent's   Right   to   Protection  from  Injury. — Every    under- 
taking for  the  rendition  of  services  is  attended  with  more  or  less  risk. 
Risks  of  this  nature  are  as  much  within  the  knowledge,  and  perhaps 
more  within  the  control  of  the  agent  than  of  the  principal.     It  is 
therefore,  the  rule  that  the  principal  is  not  responsible  to  the  agent 
for  injuries  received,  which  result  from  the  natural  and  ordinary  risk 


LIABILITIES    OF    PRINCIPAL   TO     THIED    PERSON.  163 

incidental  to  the  performance  of  the  service.  The  principal  is  liable 
for  an  injury  which  is  the  result  of  his  negligence.  He  must  pro- 
vide, not  necessarily  the  latest  and  best  machinery  and  tools,  but 
such  as  are  reasonably  safe,  and  must  keep  them  in  a  reasonable 
state  of  repair.  If  the  agent  discovers  that  the  machinery  is  not  in 
proper  repair,  it  is  his  duty  to  report  it,  for  in  such  case  he  cannot 
recover  from  the  principal  without  notice,  and  a  promise  from  the 
principal  to  repair,  which  promise  was  relied  upon. 

432.  Fellow  Servants. — Nothing  is  any  better  settled  than  that  a 
master  is  not  liable  to  a  servant  for  an  injury  resulting  from  the  neg- 
ligence of  a  fellow  servant  engaged  in  the  same  business.     Two  brake- 
men  are  fellow  servants  but  an  engineer  is  not  a  fellow  seivant  to  a 
brakeman. 

LIABILITIES  OF  PRINCIPAL  TO  THIRD  PERSON. 

433.  Undisclosed  Principal. — We  have  learned  that  when  the  agent 
fails  to  disclose  his  principal,  he  becomes  personally  liable.     Should 
the  principal  be  afterwards  disclosed,  he  also  is  liable,  at  the  election 
of  the  third  person.     This  election  must  be  made,  to  hold  the  prin- 
cipal, before  he  has  settled  with  the  agent  in  good  faith,  and  on  the 
basis  that  the  agent  alone  was  responsible. 

434.  Liabilities  for  Agent's  Acts. — It  is  a  principle  of  the  law  of 
agency  that  whatever  lawful  acts  one  does  for  another,  and  by  his 
authority,  are  to  be  considered  as  the  acts  of  that  other.     The  acts 
must  be  lawful,  for  no  one  can  authorize  another  to  do  an  unlawful 
act.      What  the  agent  does,   hoivever,  must  be  in  pursuance  of  Ms 
authority,  either  real  or  apparent,  and  tvithin  the  scope  of  his  busi- 
ness.    Third  persons  have  a  right  to  rely  on  an  agent's  apparent 
authority,  and  are  not  bound  by  secret  instructions  and  restrictions. 
If  such  secret  limitations  are  known  to  third  persons  when  dealing 
with  the  agent,  they  are  bound  by  them. 

435.  Liabilities  for  Agent's  Tort. — The  principal  is  liable  for  the 
wrongful  or  negligent  acts  of  his  agent,  done  in  the  transaction  of 
the  principal's  business.     Authority  to  do  that  particular  act  is  not 
the  criterion,  but  if  the  agent  acted  within  the  scope  of  his  employ- 
ment it  is  sufficient.     If  the  agent  goes  outside  of  this  he  alone  is 
liable. 


164  AGENCY. 

A  sent  B  to  a  saw  mill  to  get  some  lumber  belonging  to  him.  At  the  mill 
B  was  given  such  ambiguous  instructions  that  in  addition  to  A's  lumber  he 
took  C's.  A  was  held  liable. 

An  engineer  ran  his  train  when  expressly  forbidden  to  do  so.  A  collision 
occurred  and  the  company  was  held  liable. 

These  were  all  acts  within  the  scope  of  the  agent's  business. 
Should  the  agent  step  aside  from  his  employment  to  do  some  act  for 
himself,  the  principal  is  not  liable.  The  owner  of  a  horse  is  not 
liable  to  a  third  person  for  an  injury  caused  by  the  negligent  driving 
of  a  borrower,  if  it  was  not  used  at  the  time  in  the  owner's  business. 
The  principal  is  not  liable  for  the  willful  and  malicious  acts  of  the 
agent.  This  was  formerly  the  plain  rule  of  law,  but  the  later  cases 
make  no  distinction  between  a  willful  or  malicious  act  and  a  negligent 
one,  resting  both  cases  on  the  question  whether  the  act  was  done  in 
the  scope  of  the  business  of  his  employment. 


CHAPTER  XXXVI. 

LIABILITIES  OF  THIED  PERSONS  TO  AGENT. 

436.  Liabilities  on  Contract. — While  the  agent  acts  in  pursuance 
of  his   authority  for  a  disclosed  principal,  the    contract  binds  his 
principal  alone.     Yet  we  have  seen  that  an  agent  may  act  under  such 
circumstances  as  to  bind  himself,  as  when  he  fails  to  use  apt  words 
to  bind  his  principal.     In  such  cases  the  third  person  is  bound  to 
the  agent.      On  a  note  payable  to  A  B,  agent  for  C  D,  or  A  B, 
president  of  C  D  company,  the  action  may  be  brought  by  the  agent. 
He  is  also  bound  where  he  expressly  agrees  to  be.     (See  sec.  423.) 

437.  Liabilities   in   Tort. — For  all  injuries    committed  by  third 
persons  to  the  agent  personally  in  the  course  of  his  employment,  the 
agent  may  sue  and  recover  in  his  own  name.     When  the  agent  has  a 
special  interest  in  his  principal's  property  in  his  possession,  he  may 
maintain  an  action  against  any  person  who  wrongfully  injures  or 
converts  the  goods.     In  some  cases  he  may  even  maintain  an  action 
against  the  owner  or  principal. 


DISSOLUTION.  165 

LIABILITIES  OF  THIRD   PERSONS  TO  PRINCIPAL. 

438.  Liabilities  on  Contracts. — The  principal  has  the  undoubted 
right  to  sue  upon  contracts  made  by  the  agent  in  his  name.     He  also 
has  a  right  to  an  action  on  all  contracts  made  by  the  agent  in  his 
behalf,  but  in  the  agent's  name,  if  they  are  not  under  seal.     But  if  the 
contract  involved  considerations  personal  to  the  agent,  such  as  pledg- 
ing his  personal  credit,  the  third  person  is  bound  to  the  agent  alone. 
The  principal  may  recover  money  paid  out  by  the  agent  through  mis- 
take, coercion  or  without  consideration. 

A  bookkeeper  embezzled  the  funds  of  his  principal,  and  with  the  money 
bought  real  estate,  which  he  took  in  the  name  of  his  wife,  who  knew  the 
source  from  which  the  money  had  been  obtained.  It  was  held  in  equity 
that  the  principal  was  entitled  to  recover  the  property. 

439.  Liabilities  for  Torts. — For  wrongs  done  or  injuries  commit- 
ted by  third  persons  to  his  property  while  in  possession  of  the  agent, 
the  principal  may  recover  in  the  same  manner  as  though  no  agency 
had  existed.     A  third  person  is  liable  to  a  principal  for  wrongfully 
inducing  an  agent  to  abandon  his  undertaking.     If  one  contracts  for 
a  consideration  to    render  personal  services  for  another,  any  third 
person  who  maliciously  induces  the  party  who  contracted  to  render 
the  service,  to   refuse  to  do  so,  is  liable  to  the  injured  party  for 
damages.     For  the  same  reason  the  principal  may  recover  against 
one  who  wrongfully  prevents  the  agent  from  performing  his  duties, 
whereby  the  principal  is  injured. 

DISSOLUTION. 

440.  Manner  of  Dissolution. — An  agency  may  be  dissolved  or  termi- 
nated in  any  of  the  following  ways : 

I.  By  Original  Agreement.          \  l'  *y  ^pse  of..'?me-  f 

/  2.  By  Accomplishment  of  Object. 

II.  By  Act  of  the  Parties.  \  J"  *y  ^P*1- 

J  |  2.  By  Agent. 

f  1.  Death. 

III.  By  Operation  of  Law.  j  jj;  ^ruptcy 

v  4.  Marriage. 

441.  Original  Agreement. — When    the     agency    was     originally 
created,  to  endure  for  a  given  period,  or  until  the  happening  of  a 
certain  event,  the  expiration  of  that  time  or  the  happening  of  that 


166  AGENCY. 

event,  terminates  the  agency.  So  where  the  agency  is  created  for 
the  purpose  of  accomplishing  a  certain  object  or  objects,  the  accom- 
plishment of  that  purpose  will  terminate  it. 

A  was  employed  by  B  to  purchase  a  certain  piece  of  real  estate.  In 
August  A  delivered  the  deed  to  B,  and  was  paid  the  purchase  price  to  be 
paid  the  vendor.  He  was  also  paid  his  commission.  In  October  A  bought 
the  same  property  at  a  tax  sale,  and  in  an  action  by  A  to  recover  the  land, 
B  claimed  that  A  was  still  his  agent  at  the  time  of  purchase,  but  the  court 
held  that  the  agency  terminated  in  July,  when  the  object  of  the  agency 
was  accomplished. 

442.  Dissolution  by  Act  of  the  Parties. — It  is  well  understood  that 
the   principal  may  revoke  the   agency  at    any  time,  provided  the 
agent's  authority  is  not  coupled  with  an  interest  in  the  subject  mat- 
ter.    Aside  from  this  it  matters  not  whether  the  principal  has  or  has 
not  good  reasons  for  so  doing.     This  is  true  even  though  the  author- 
ity be  in  express  terms  declared  to  be  "exclusive"  or  "irrevocable." 
While  the  principal  has  the  power  to  revoke  the  agency,  he  may 
subject  himself  to  a  claim  for  damages  if  he  does  so  contrary  to  his 
agreement.     When  the  agency  is  coupled  with  an  interest  the  prin- 
cipal has  not  the  power  to  revoke  it. 

An  instance  of  an  agency  coupled  with  an  interest  is  where  A  loans  B 
money  on  collateral  security  and  instead  of  taking  a  direct  endorsement 
takes  a  power  of  attorney  to  endorse  at  any  time  he  may  deem  it  necessary. 
This  power  of  attorney  cannot  be  recalled  by  B  at  his  pleasure. 

There  is  a  clear  distinction  between  the  right  to  revoke  and  the 
power  to  revoke.  The  principal  may  have  agreed  that  the  confiden- 
tial relation  shall  exist  for  a  certain  time,  but  this  is  a  contract  that 
the  law  will  not  require  to  be  specifically  performed.  Thus,  while 
the  principal  may  have  the  power  to  revoke,  he  may  not  have  the 
right  to  do  so.  But  even  in  such  cases  the  principal  may  be  justified 
in  terminating  the  agency,  as  in  case  of  the  agent's  incompetence  or 
misconduct. 

443.  Renunciation  by  Agent. — The  agent  may  renounce  the  agency 
at  any  time,  being  liable  for  damages  to  his  principal  for  any  breach 
in  his  contract.     As  has  been  remarked,  an  agreement  for  personal 
services  will  not  be  specifically  enforced.     If  the  agent  be  required  to 
do  an  unlawful  act,  he  is  justified  in  renouncement. 

444.  Renunciation   by  Operation  of  Law. — Such  changes  in  the 
conditions,  capacity  and  surroundings  of  the  parties,  or  the  subject 
matter,  may  occur,  as  to    render  the  continuance  of    the  relation 
imprudent  or  impossible.     It  is  then  said  to  terminate  by  operation 
of  law.     The  death  of  either  principal  or  agent  works  a  dissolution. 


DISSOLUTION.  16? 

If  however,  the  agency  is  coupled  with  an  interest,  it  is  not  dissolved 
on  the  death  of  either  the  principal  or  the  agent.  If  executed  after- 
wards, by  the  agent  or  his  representative,  it  is  sufficient. 

A  desires  to  give  B  $500  out  of  his  estate.  He  draws  a  note  for  that 
amount  in  B's  favor  and  gives  it  to  C  with  instructions  to  deliver  it  imme- 
diately after  his  (A's)  death.  This  will  not  be  valid  for  C's  authority  ceases 
at  A's  death. 

On  the  death  of  one  partner,  the  partnership  is  dissolved,  and 
therefore  the  authority  of  an  agent  appointed  by  the  firm  ceases. 

445.  Renunciation  by  Insanity. — The  insanity  of  either  party  also 
renders  the  termination  of  the  agency  necessary.     The  rule  of  an 
interest  in  the  subject  matter,  however,  applies  in  this  case  also. 

446.  Renunciation  by  Bankruptcy. — The  bankruptcy  of  the  prin- 
cipal also  works  a  dissolution,  for  this  divests  him  of  all  control  over 
his  property  and  affairs,  and  the  subject  matter  of  the  agency  passes 
from  his  control.     It  is  not  the  mere  inability  to  pay  his  debts  which 
causes  the  dissolution  of  agency,  but  the  fact  that  he  surrenders  his 
business  and  the  law  assumes  control  of  his  affairs.     The  bankruptcy 
of  a  business  agent  dissolves  the  agency,  but  not  when  his  authority 
is  to  do  a  formal  act. 

447.  Renunciation  by  Marriage.  — A  man  gave  a  power  of  attorney 
to  another  to  sell  his  homestead,  but  before  the  sale  was  effected  the 
principal  married.     It  was  held  that  the  marriage  revoked  the  author- 
ity.    Only  such  powers,  as  will  defeat  or  impair  rights  acquired  by 
the  marriage  of  a  principal  will  be  revoked.     At  common  law  the 
subsequent  marriage  of  a  feme  sole  revoked  all  agencies  created  by 
her,  and  this  is  still  the  law  where  the  statute  has  not  clothed  her 
with  full  power  to  deal  with  her  own  property  as  a  feme  sole. 

448.  Renunciation,  When  Takes  Affect. — An  agency  is  terminated 
as  to  the  agent  as  soon  as  he  is  notified  of  such  termination,  except 
in  case  of  death,  when  it  terminates  as  to  all  parties  the  instant  of 
the  death.     Even  a  termination  on  the  grounds  of  the  insanity  of 
either  party  does  not  take  place  until  notice  is  received.     As  to  third 
persons,  the  rule  is  the  same,  the  agency  terminates  as  soon  as  they 
receive  notice  of  it.     For  this  reason  the  principal  should  at  once 
give  notice  to  all  third  persons  that  have  had  dealings  with  the  agency. 


168  PEACTICAL    REVIEW. 


PRACTICAL    REVIEW. 

I.  A  is  agent  for  B,  and  as  such  agent  makes  a  contract  with  C  in  his  own 
name,   C   being  ignorant    of    his    agency.      Can   B    enforce    this    contract 
against  C? 

II.  A,  an  agent  to  sell  goods,  made  without  authority  false  and  fraudulent 
representations  to  a  purchaser  in  regard  to  the  goods.     Is  his  principal  liable 
for  his  deceit? 

III.  An  agent  entered  into  a  contract  on  behalf  of  his  principal  after  the 
principal's  death,  which  was  unknown  to  both  the  agent  and  third  person. 
Are  there  any  circumstances  under  which  this  contract  would  be  binding? 

IV.  Suppose  in  the  above  case  the  principal  instead  of  dying  had  become 
insane.     Would  the  contract  be  binding? 

V.  A  consigns  a  car  load  of  flour  to  B,  to  be  sold  on  commission.     Is  B  a 
general  or  special  agent? 

VI.  B,  as  agent  for  A,  has  had  dealings  with  C.     After  revocation  of  his 
authority,  B  continues  dealing  with  C,  C  having  no  knowledge  of  the  revoca- 
tion.    What  would  you  say  were  C's  rights? 

VII.  A  cashier  pays  a  genuinely  signed  check  of  a  depositor  which  has 
been  fraudulently  raised  to  a  larger  amount.     On  whom  will  the  loss  fall  in 
this  case? 

VIII.  A  made  an  offer  by  letter  to  B  to  sell  him  a  horse.     B  being  unable 
to  read  the  letter,  had  it  read  to  him  by  his  wife,  who  in  reading  substituted 
the  word  cow  for  horse.     B  then  had  his  wife  write  a  letter  to  A  accepting 
the  offer.     What  are  the  rights  and  liabilities  of  A  and  B  respectively? 

IX.  A  made  an  oral  offer  to  B,  giving  him  three  days  in  which  to  accept. 
On  the  second  day  B  wrote  a  letter  of  acceptance,  and  on  being  told  by  C 
that  he  expected  to  see   A  that   night,  gave  C  the  letter  to  deliver.      C 
destroyed  it.     What  are  the  rights  and  liabilities  of  the  parties? 

X.  A  is  a  real  estate  and  insurance  agent.     As  such  he  is  employed  by  B 
to  look  after  certain  buildings.     B  directs  him  to  have  them  insured,  which 
he  does  in  one  of  his  own  companies.     In  case  of  fire  what  grounds  would  the 
insurance  company  have  for  a  refusal  to  pay  the  loss? 

XI.  A  man  gives  his  coachman  authority  to  sell  his  horse  for  a  certain 
price.     The  coachman  sells  the  horse  and  warrants  him  to  be  sound.     There 
is  a  breach  of  warranty.     Is  the  principal  liable?    Why? 

XII.  A  owns  several  brick  yards,  and  puts  B  in  charge  of  one  with 
instructions  to  hire  only  a  certain  number  of  men.     He  hired  more.     Is  A 
liable  for  their  wages?     Why? 

XIII.  A  delivery  man  is  in  the  habit  of  reckless  driving.     His  employer 
forbids  it,  but  in  a  few  days,  while  delivering  goods,  he  injures  B  by  his 
carelessness.     Against  whom  has  B  a  claim  for  damages? 

XIV.  An  engineer  was  injured  by  a  wreck  caused  by  a  defect  in  his 
engine.     He  had  complained  of  this  defect  to  the  proper  official,  who  had 
promised  to  have  it  remedied.     Is  the  company  liable  to  him? 

XV.  A,  apparently  acting  in  behalf  of  B,  borrowed  §500  to  pay  a  mort- 
gage on  B's  property.     The  money  was  used  for  that  purpose,  but  B  denies 
that  A  had  any  authority  to  borrow  it  for  him.     Is  B  liable? 

XVI.  How  would  it  be  in  the  above  case  if  A  had  previously  agreed  to 
pay  this  mortgage? 

XVII.  A  was  given  a  note  to  collect  for  B,  and  out  of  the  proceeds  was  to 
retain  sufficient  to  repay  him  for  advances  already  made  to  the  principal. 
Before  the  note  falls  due  B  seeks  to  revoke  A's  authority.     Can  he  do  it? 


REVIEW    QUESTIONS.  169 

XVIII.  B,  a  banker  of  Chicago,  received  from  A  for  collection  a  note  due 
in  Detroit,  Mich.  B  forwards  the  note  to  the  First  National  Bank,  of 
Detroit,  which  is  so  negligent  in  the  collection  of  it  that  a  portion  of  it  is 
lost.  To  whom  must  A  look  for  his  damages? 


REVIEW-  QUESTIONS. 

1.  Define  agency.  2.  Into  what  classes  is  it  divided?  3.  Define  each. 
4.  What  is  the  practical  necessity  of  such  a  division?  5.  Who  may  be  an 
agent?  6.  Can  a  corporation  be  an  agent?  7.  Who  cannot  be  an  agent?  8. 
How  are  agents  appointed?  9.  Is  an  agency  e^er  implied?  10.  Does  the 
law  ever  create  an  agency  against  the  will  of  the  principal,  and  if  so  when? 
11.  Must  any  agents  be  appointed  in  a  particular  way?  12.  What  is  the 
formal  method  of  appointing?  18.  When  is  an  agency  implied?  14.  What 
are  the  duties  of  the  agent  to  the  principal?  15.  How  far  must  he  obey 
instructions?  16.  When  will  he  be  justified  in  ignoring  them?  17.  What 
care  must  he  use?  18.  In  your  State  whose  agent  is  a  correspondent  bank  to 
whom  paper  has  been  forwarded  for  collection?  19.  To  whom  belongs  the 
profits  of  an  agency?  20.  To  whom  do  the  profits  resulting  from  a  disobe- 
dience of  instructions  belong?  21.  What  is  the  doctrine  of  notice  as  applied 
to  agency?  22.  When  will  an  agent  become  liable  to  third  persons?  23. 
When  is  a  public  agent  liable?  24.  When  he  exceeds  his  authority  whom 
will  he  bind?  25.  When  money  has  been  paid  an  agent  through  mistake  and 
he  turns  it  over  to  his  principal,  is  the  agent  liable?  26.  What  are  the 
liabilities  of  the  principal  to  the  agent?  27.  How  far  has  the  principal  the 
right  of  recoupment?  28.  When  can  the  agent  claim  indemnity?  29.  How 
far  and  under  what  circumstances  can  the  agent  claim  protection  from 
injury?  30.  What  is  the  rule  as  to  injuries  received  through  fellow -servants? 
31.  When,  if  at  all,  can  a  third  person  hold  a  principal  who  was  not  dis- 
closed at  time  of  contract,  but  was  later?  32.  Is  the  principal  liable  for  the 
agent's  torts?  33.  Are  there  any  torts  for  which  he  is  not  liable,  and  if  so 
what  are  they?  34.  For  what  contracts  may  the  agent  sue  third  persons  in 
his  own  name?  35.  For  what  torts  may  he  sue  in  his  own  name?  36.  Art 
there  any  contracts  made  by  the  agent  that  the  principal  cannot  sue  upon 
in  his  own  name?  37.  How  may  an  agency  be  dissolved?  38.  When  can  the 
principal  revoke  the  agency?  39.  When  can  he  not?  40.  Suppose  the 
authority  be  for  a  certain  time  or  states  that  it  is  irrevocable,  can  it  be 
revoked?  41.  How  is  an  agency  dissolved  by  operation  of  law?  42.  When 
does  the  termination  take  place?  43.  What  is  the  doctrine  of  notice  in 
this  respect?  44.  When  will  bankruptcy  of  the  agent  terminate  the  agency? 


170  PARTNERSHIP. 


PARTNERSHIP. 


CHAPTER  XXXVII. 

449.  Definition. — A  partnership  is  the  relation  existing  between 
two  or  more  persons  that  have  combined  their  property,  labor  or  skill 
in  the  transaction  of  business  for  their  common  profit.     The  parties 
to  this  relation  are  called  partners. 

Partnership  resembles  agency  in  that  each  partner  who  transacts 
business  for  the  firm  is  considered  as  an  agent  for  it.  Hence  many 
of  the  principles  of  agency  are  likewise  applicable  to  partnership. 

450.  Partnership,  How  Formed. — The  contract  by  which  persons 
assume  the  relations  of  partners  is  not  included  in  the  Statute  of 
Frauds,  consequently  it  may  be  oral.     If  the  partnership  be  a  com- 
plicated one  and  the  amount  large  or  the  time  for  which  the  partner- 
ship is  formed  be  long  it  is  always  prudent  to  commit  it  to  writing. 
Sometimes  a  partnership  is  formed  by  implication.     In  this  case  the 
parties  hold  themselves  out  as  partners  in  such  a  manner  as  to  lead 
third  persons  to  believe  them  to  be  such.     They  may  not  in  fact  be 
partners  but  having  secured  credit  as  a  result  of  their  action  they 
will  be  estopped  from  afterwards  denying  the  partnership. 

When  the  contract  of  partnership  is  in  writing  it  should  for  reasons 
stated  in  Sec.  131  be  full  and  explicit. 

451.  What  the  Contract  Should  Contain. — The  articles  of  copart- 
nership should  specify  the  firm  name,  the  duration  of  the  partnership, 
and  the  amount  to  be  contributed  by  each.     If  one  is  to  be  relieved 
from  the  management  of  the  business  it  should  so  state.     If  each  is 
to  give  his  entire  time  and  attention  to  the  business  he  should  be 
obligated  to  do  so.     It  should  state  the  nature  and  scope  of  the  busi- 
ness and  the  manner  of  the  division  of  the  profits.     In  many  cases  it 
is  desirable  to  limit  the  amount  that  may  be  withdrawn  by  each  part- 
ner and  in  case  more  than  the  limit  is  withdrawn  to  give  to  the  other 


PABTNEBSHIP.  171 

partner  or  partners  the  right  to  dissolve  the  partnership  if  the  excess 
be  not  returned  upon  notice. 

Sometimes  each  partner  is  obligated  that  he  will  not  endorse  a  note 
or  become  surety  for  another  without  the  consent  of  his  partners,  for 
by  so  doing  he  is  liable  by  becoming  insolvent  to  work  a  dissolution 
of  the  partnership. 

Any  other  provisions  peculiar  to  the  case  should  also  be  inserted. 

452.  Kinds  of  Partners. — Partners  may  be,  (1)  real  or  ostensible, 
(2)  dormant  or  concealed,  (3)  nominal,  (4)  limited  or  special. 

A  real  or  ostensible  partner  is  one  who  is  published  as  a  partner 
und  in  fact  is  a  partner  accepting  all  the  benefits  and  risks  of  the 
partnership. 

A  dormant  or  concealed  partner  is  sometimes  called  a  silent  part- 
ner. He  is  not  published  to  the  world  as  a  partner  but  in  fact  is  one. 
Being  unknown  as  a  partner,  he  is  in  a  position  to  share  the  profits 
of  a  prosperous  business  and  to  avoid  personal  responsibility  in  case 
of  failure.  Should  his  position  be  discovered  he  becomes  a  real  part- 
ner and  is  liable  as  such  whether  creditors  trusted  the  partnership  on 
his  account  or  not. 

A  nominal  partner  as  the  name  implies  is  a  partner  in  name  only. 
His  name  appears  in  the  business  but  in  reality  he  has  no  interest  in 
it.  Persons  of  influence  often  lend  their  credit  in  this  way  to  near 
relatives.  He  does  not  share  the  profits  but  in  case  of  failure  he  is 
liable  for  the  debts  of  the  partnership  in  the  same  manner  as  if  he 
were  a  real  partner.  In  fact  he  is  a  partner  so  far  as  third  persons 
are  concerned. 

A  special  or  limited  partner  is  one  whose  liability  is  limited  by  the 
amount  of  his  investment.  He  is  solely  a  creature  of  statute  being 
unknown  to  the  common  law. 

453.  Who  May  be  Partners. — Those  who  are  competent  to  con- 
tract generally  may  become  partners.     In  states  where  the  statutes 
have  given  to  married  women  the  right  to  contract  she  can  also 
become  a  partner  especially  with  the  consent  of  her  husband. 

454.  Firm  Name. — It  is  usual  for  the  partners  to  fix  upon  a  firm 
name  or  title  by  which  they  will  be  known.     The  law  gives  them  the 
greatest  latitude  in  this  regard.     They  may  choose  the  name  of  one 
of  the  partners  or  they  may  go  outside  and  adopt  a  name  that  does 
not  include  the  name  of  any  partner. 


172  PARTNERSHIP. 

Sometimes  states  by  statute  forbid  the  addition  of  &  Co.  when  it 
does  not  represent  some  one.  All  suits  at  law  must  be  brought  in 
the  names  of  the  individuals  composing  the  firm. 

455.  Duration  of  Partnership. — The  partnership  being  formed  by 
the  voluntary  consent  of  the  partners  they  may  fix  the  period  of  its 
duration  and  in  many  cases  do  so.     If  no  limit  is  fixed  upon,  it 
exists  at  the  pleasure  of  any  partner  who  may  terminate  it  by  with- 
drawal.    While  its  duration  may  not  be  expressly  stated  yet  it  may 
be  implied  from  the  circumstances,  as  where  the  partnership  appears 
to  have  been  formed  for  a  single  transaction. 

The  partnership  may  exist  for  the  life  of  the  parties,  but  it  requires 
an  express  stipulation  to  continue  it  beyond  the  death  of  either  part- 
ner. In  no  such  case  will  its  continuation  beyond  the  death  of  any 
partner  be  presumed. 

456.  How  Property  Held  in   Partnership. — Partnership   property 
is  held  jointly.     Each  partner  owns  an  undivided  part,  and  each  is 
entitled  to  the  possession  of  every  parcel.     Neither  can  say  this  is 
my  part  and  that  is  his.     They  are  joint  tenants  without  the  right 
of  survivorship.      (See  sec.  21.)     Partnership  further  differs  from 
joint  tenancy  in  that  a  joint  tenant  cannot  dispose  of  the  interest  of 
the  other,  while  in  partnership  each  partner  has  the  power  to  dispose 
of  the  entire  property.    In  case  the  partnership  property  be  real  estate? 
purchased  by  partnership  funds  for  partnership  purposes,  it  is  firm 
property,  and  liable  for  the  firm  debts,  but  if  not  so  purchased  and. 
held  it  belongs  to  the  partners  individually.     In  firm  real  estate  the 
widow  of  a  partner  has  no  dower  until  the  firm  debts  are  paid.     In 
case  of  the  sale  of  real  estate  held  by  the  firm,  each  member  of  the 
firm  must  join  in  the  conveyance,  by  signing  his  name  and  affixing 
his  private  seal. 

457.  Losses  and  Gains. — It  has  been  said  that  sharing  in  the  gains 
and  losses  is  one  of  the  first  tests  of  the  existence  of  a  partnership, 
for  no  real  partnership  can  exist  that  does  not  consider  the  element 
of  profit.     The  partners  usually  determine  in  their  agreement  how 
and  in  what  proportion  the  gains  and  losses  shall  be  divided,  but  in 
the  absence  of  any  such  agreement,  the  law  presumes  that  they  are 
to  share  equally,  notwithstanding  their  investments  may  appear  to 
be  very  unequal.     But  the  fact  that  a  person  receives  a  portion  of 
the  profits  will  not  alone  make  him  a  partner.     This  will  depend 


PARTNER'S   AUTHORITY    AND    LIABILITY.  173 

upon  the  circumstances  of  each  case,  considering  the  intention  of 
the  parties  and  the  way  in  which  the  alleged  partner  was  held  forth 
to  the  public.  For  as  we  observed  in  agency,  which  partnership 
much  resembles,  individuals  may  not  be  partners  as  between  them- 
selves, yet  as  to  third  persons  they  may  be.  The  question  frequently 
arises  when  a  clerk  or  agent  is  employed  upon  an  agreement,  that 
his  services  shall  be  compensated  for,  not  by  a  fixed  salary,  but  by  a 
share  of  the  profits.  Unless  the  agreement  gives  him  an  interest  in 
the  capital  stock,  and  the  right  to  an  accounting,  he  is  not  a  partner, 
and  cannot  be  held  as  such. 

It  may  be  agreed  that  a  partner  shall  share  in  the  profits,  but  will 
not  be  liable  for  the  losses.  This  agreement  is  valid  as  between 
themselves,  but  like  all  such  agreements,  it  will  not  be  binding  upon 
third  persons  who  have  no  knowledge  of  it.  If  the  creditor  knew 
of  this  agreement  at  the  time  of  extending  the  credit,  he  is  bound 
by  it. 


CHAPTER   XXXVIII. 

PARTNER'S  AUTHORITY  AND  LIABILITY. 

458.  General  Eule   of  Authority  and  Liability. — It  is  a  general 
rule  that  the  firm  and  all  its  members  are  bound  by  the  acts  and  the 
contracts  of  one  partner,  while  acting  within  the  scope  of  the  part- 
nership business.     This  power  of  one  to  bind  all  arises  from  the 
agency  which  all  confer  on  each  other.     It  also  rests  upon  the  com- 
munity of  interest  whereby  each  partner  owns  the  whole  in  common 
with  all  the  others. 

459.  Scope  of  Business. — Every  partnership  is  created  for  transact- 
ing a  certain  kind  or  kinds  of  business.     Outside  of  this  a  partner 
has  no  power  to  bind  the  firm.     Third  persons  dealing  with  the  firm 
are  supposed  to  take  notice  of  the  nature  and  scope  of  the  business 
before  extending  to  the  firm  any  credit,  and  hence  a  partner  who  acts 
in  a  matter  entirely  outside  of  this,  does  not  bind  the  firm.     Thus, 
a  firm  organized  for  the  purpose  of  conducting  a  wholesale  jewelry 
business  would  not  be  bound  by  one  partner  who  agrees  to  purchase 
in  the  firm  name  a  stock  farm. 


174  PARTNERSHIP. 

460  Partners  May  Bind  the  Firm. — The  firm  is  responsible  for 
any  acknowledgments,  admissions,  or  representations  of  a  partner 
transacting  partnership  business.  Any  fraud  he  may  commit  in  such 
matters  will  bind  the  firm,  for  they  have  held  him  out  as  a  person 
worthy  of  confidence,  and  besides,  they  must  share  in  any  profits 
arising  out  of  such  fraud.  One  partner  may  compromise  a  debt  either 
owing  to  or  by  the  firm,  and  he  may  also  assign  firm  property  in  satis- 
faction of  firm  debts.  Each  partner  may  make  or  endorse  negotiable 
paper  for  the  firm.  He  may  also  sell  and  transfer  the  entire  partner- 
ship assets.  He  may  borrow  money  in  the  firm  name,  but  if  the 
partnership  name  be  the  name  of  one  partner,  a  note  signed  by  him 
is  presumed  to  be  his  individual  note,  and  the  contrary  must  be 
shown.  It  matters  not  that  money  borrowed  in  the  firm  name  by  a 
partner  was  misapplied  by  him,  the  firm  will  still  be  bound. 

461.  Partners  Cannot  Bind  the  Firm. — A  partner  cannot  bind  his 
copartners    by  submitting    a  partnership   question    to  arbitration; 
neither  can  a  partner  give  the  firm  paper  in  payment  of  his  individual 
debt.     It  has  also  been  held  that  a  partner  cannot  apply  the  firm's 
funds  to  the  payment  of  his  own  debts.     Outside  of  a  special  authority 
a  partner  cannot  bind  the  firm  by  becoming  surety  for  another.     One 
partner  cannot  bind  his  copartners  by  contracts  under  seal.     It  is 
not  altogether  settled  whether  one  partner  can  make  a  general  assign- 
ment of  firm  assets  for  the  benefit  of  firm  creditors,  but  the  weight 
of  authority  seems  to  be  in  favor  of  it. 

462.  Relations  to  Each  Other. —  While  a  partner  may  make  many 
contracts  that  will  be  binding  on  the  firm,  yet  if  they  suffer  any  loss 
from  his  gross  negligence  or  fraud,  he  will  be  liable  to  the  other  part- 
ners.    So  if  he  violate  any  of  the  provisions  of  the  partnership  agree- 
ment, he  is  liable.     It  might  easily  be  inferred  from  this  that  the 
partners  may  make  any  agreement  they  choose,  limiting  the  power  of 
each  partner  to  bind  the  others,  but  such  an  agreement  is  void  as  to 
third  persons  who  have  no  knowledge  of  it. 

In  the  absence  of  an  agreement  to  the  contrary,  each  partner  is 
bound  to  devote  his  best  skill  and  endeavor  to  the  interests  of  the 
copartnership,  and  he  cannot  make  a  charge  for  so  doing.  He  should 
never  permit  a  private  interest  to  be  at  variance  with  the  joint  inter- 
est, or  engage  in  competition  with  the  joint  business.  If  he  steps  in 
and  appropriates  firm  business  to  himself,  the  profits  will  belong  to 
the  firm. 


PARTNER'S  AUTHORITY  AND  LIABILITY.  175 

463.  A  Partner's  Liability. — The  partners  cannot,  by  an  agree- 
ment among  themselves,  release  each  other  from  a  personal  responsi- 
bility for  firm  debts.  The  firm  assets  are  first  liable  for  the  firm 
debts,  after  which  the  partners  are  individually  responsible  for  the 
full  amount  of  the  indebtedness.  If  in  an  insolvent  firm  of  three 
members  two  have  no  property  beyond  their  interest  in  the  firm,  and 
the  third  is  wealthy,  he  will  be  obliged  to  pay  the  debts  of  the  firm. 

A  somewhat  difficult  question  arises  when  a  partner  is  engaged  in 
business  outside  of  the  firm,  and  becomes  insolvent.  His  private 
creditors  may  seek  to  attach  or  levy  upon  his  interest  in  the  partner- 
ship. The  general  rule  is  that  their  claim  will  be  postponed  to  the 
claim  of  the  firm  creditors.  Hence,  if  the  firm  be  also  insolvent, 
there  will  be  nothing  remaining  of  the  firm's  assets  for  the  individ- 
ual creditors.  This  rule  is  said  to  exist,  not  because  the  firm  cred- 
itors have  a  superior  right  to  the  preference,  but  because  of  the 
equity  existing  between  the  partners.  If  the  individual  creditors  be 
allowed  to  withdraw  a  partner's  interest,  this  would  leave  more  of 
the  firm  debts  to  be  paid  from  the  private  funds  of  the  remaining 
partners.  It  would  be  in  effect  requiring  these  partners  to  pay  the 
insolvent  partner's  private  debts. 

A  common  rule  is  that  in  levying  an  execution  against  one  partner 
for  his  private  debt,  the  sheriff  may  take  possession  of  the  entire 
joint  property  to  invoice  it,  but  he  cannot  divide  it.  He  can  only 
sell  the  partner's  interest  in  it,  but  cannot  deliver  exclusive  posses- 
sion, for  the  debtor  himself  had  no  such  right.  The  purchaser 
becomes  a  tenant  in  common  with  the  remaining  partners,  and  holds 
his  share  in  any  case  subject  to  an  accounting  between  the  parties. 

There  is  much  diversity  of  opinion  and  practice  as  "to  the  method  to 
be  pursued  in  this  case,  and  we  have  only  attempted  to  give  above 
one  method  of  procedure.  The  student  should  consult  the  decisions 
of  the  courts  of  his  own  state  before  acting. 

That  the  partnership  assets  are  reserved  for  the  firm  creditors,  is 
the  universal  rule,  but  whether  the  private  assets  are  reserved  for 
the  private  creditors  is  not  so  well  settled.  •  The  latter  is  the  law  in 
Illinois  and  in  many  other  States. 


174  PARTNERSHIP. 


CHAPTER  XXXIX. 
DISSOLUTION  OF  PARTNERSHIP. 

464.  Dissolution,  How  Effected. — A  partnership  may  be  dissolved 
in  any  of  the  following  ways : 

I.  By  Agreement. 
II.  By  Act  of  One  Party. 

III.  By  Decree  of  Court. 

IV.  By  Operation  of  Law. 

465.  Dissolution   by   Agreement. — The    contract    of    partnership 
being  a  voluntary  one,  it  is  perfectly  proper  that  the  partners  should 
in  like  manner  be  able  to  terminate  it  at  any  time.     The  contract  of 
partnership  often  specifies  the  length  of  its  duration,  and  when  it 
does  so,  the  partnership  terminates  accordingly,  unless  by  a  further 
contract  either  express  or  implied,  it  is  unanimously  agreed  to  extend 
it.     If  no  period  is  so  fixed,  it  is  presumed  to  exist  at  the  pleasure 
of  any  partner.     If  the  partnership  be  formed  for  a  single  transac- 
tion, or  for  a  series  of  them,  it  will  be  terminated  when  its  object  is 
accomplished.     The  dissolution  should  be  made  with  due  notice  to 
the  other  partner.or  partners,  and  at  such  time  and  in  such  a  man- 
ner as  not  to  cause  unnecessary  injury  to  them. 

466.  Dissolution  by  Act  of  One  Partner. — A  dissolution  may  take 
place  when  a  partner  refuses  to  act  with  the  other  partners,  or  when 
he  engages  in  other  business.     A  dissolution  is  also  effected  when 
one  partner  assigns  his  interest  in  a  partnership.     The  partners  are 
not  obliged  to  accept  the  purchaser  as  a  partner,  for  he  may  be 
objectionable  to  them.     Neither  is  the  purchaser  obliged  to  become 
one.     If,  however,  the  partners  consent  to  do  so,  their  consent  has 
the  effect  of  dissolving  ^he  old  and  creating  a  new  partnership. 

In  this  will  be  seen  a  distinction  between  a,  power  to  do  a  thing  and 
a  right  to  do  it.  While  the  partner  has  the  power  to  assign  his 
interest,  he  may  have  no  right  to  do  so,  and  is  liable  for  any  breach 
of.  contract  with  his  partners,  or  for  any  loss  resulting  to  them 
therefor. 


DISSOLUTION    OF   PARTNERSHIP.  177 

467.  Dissolution  by  Decree  of  Court. — A  court  of  equity  will,  for 
just  and  reasonable  causes,  decree  a  dissolution  of  a  partnership. 
It  must  be  understood,  however,  that  such  a  court  will  not  interfere 
for  slight  and  trivial  causes.     When  a  court  decrees  a  dissolution  it 
usually  appoints  a  receiver,  who  takes  charge  of  the  firm's  business, 
collects  all  debts  due  the  firm,  pays  all  its  obligations,  converts  its 
assets  into  cash,  and  divides  the  residue  according  to  the  interest  of 
each. 

468.  Grounds  for  Decree. — When  the  business  proves  to  be  imprac- 
ticable, a  decree  will  be  granted.     This  may  result  from  the  inability 
of  one  or  more  partners  to  fully  carry  out  their  part,  or  it  may  be 
on  account  of  the  undertaking  itself  being  visionary.     One  of  the 
partners  may  prove   to  be  so  grossly  immoral  or  intemperate,  or 
exhibit  such  a  lack  of  good  faith  as  to  imperil  the  success  of  the 
venture.      He  may  be  careless  and  reckless  in  his  conduct  of  the 
business.     So,  too,  one  partner  may  exclude  the  others  from  their 
share  in  the  management  of  the  business,  or  may  deny  them  access  to 
the  books  of  account. 

Long  and  continued  absence  of  one  of  the  partners,  or  his  change 
of  residence  to  another  State,  and  his  engagement  in  other  lines  of 
business,  so  that  the  interests  of  the  other  partners  are  prejudiced, 
have  been  deemed  just  grounds  for  a  dissolution.  Continued  quarrel- 
ing among  the  partners,  and  the  inability  or  incapacity  of  one  partner 
to  attend  to  business,  have  likewise  been  held  sufficient. 

469.  Dissolution   by  Operation   of  Law. — Whenever  the  state  or 
condition  of  a  partner  is  so  changed  that  he  is  incapable  of  acting  for 
himself,  the  partnership  is  said  to  be  dissolved  by  operation  of  law. 
When  a  copartnership  is  formed,  it  is  presumed  not  only  that  the 
parties  are  competent  to  contract,  but  that  they  will  continue  so.     If 
for  any  reason  the  law  makes  a  change  in  his  legal  status,  the  remain- 
ing partners  will  be  relieved  from  their  contract  of  copartnership, 
and  this  without  any  affirmative  act  on  their  part,  but  ip so  facto. 

If  a  partner  becomes  insane,  or  a  spendthrift,  or  if  for  any  reason 
he  is  placed  under  guardianship,  he  is  thus  incapacitated  to  act 
either  for  himself  or  the  partnership.  So,  by  the  common  law,  the 
marriage  of  a  female  partner  will  dissolve  the  partnership,  but  doubt- 
less this  is  not  now  the  law  in  most  States. 

If  the  partner's  interest  be  sold  on  execution  against  him,  it  works 
*  dissolution,  for  the  purchaser  is  not  a  partner.  The  bankruptcy 


178  PARTNERSHIP. 

or  insolvency  of  a  partner  dissolves  the  partnership,  for  his  property 
passes  into  the  hands  of  his  assignee,  who  has  no  powers  except  to 
wind  up  his  affairs. 

As  alien  enemies  cannot  contract,  neither  can  they  continue  as 
partners,  for  this  continuance  is  but  the  fulfillment  of  a  contract. 
Lastly,  the  death  of  a  partner  works  a  dissolution.  This  dissolution 
takes  effect  like  the  dissolution  of  an  agency  in  case  of  the  death  of 
the  agent,  immediately,  regardless  of  whether  third  persons  have 
notice  of  it  or  not. 

470.  What  Powers  Cease. — When  a  dissolution  occurs  there  is  a 
change  in  the  relations  of  the  partners  and  in  their  rights  and  powers. 
They  can  no  longer  use  the  partnership  property  for  the  purposes  of 
trade,  but  can  only  make  such  contracts  as  look  to  the  settlement  of 
the  partnership  affairs.     One  partner  can  neither  make  nor  endorse 
negotiable  paper  in  the  firm  name.     He  cannot  create  new  obligations 
nor  vary  those  already  made. 

471.  What  Powers  Remain. — On  the  dissolution  each  partner  has 
the  right  to  collect  and  receipt  in  the  firm  name  for  all  debts  due  the 
firm.      He  has  also  the  right  to  adjust  and  pay  all  unliquidated 
debts  of  the  firm  with  the  firm's  money.     Each  may  also  sell  firm 
property  for  cash  and  each  may  insist  that  all  firm  debts  be  paid 
before  any  division  of  assets  is  made  between  the  partners. 

472.  New  Powers  Created. — When  a  partnership  is  dissolved  the 
peculiar  relation  of  partners  as  such  ceases  and  they  become  at  once 
tenants  in  common  with  all  that  relation  implies. 

When  the  dissolution  is  caused  by  the  death  of  one  partner,  his 
personal  representatives  become  tenants  in  common  with  the  survivor 
with  the  right  to  demand  an  accounting  but  with  no  right  to  a  part 
in  the  winding  up  of  the  business.  This  is  a  right  belonging  solely 
to  the  survivor  or  survivors. 

473.  Notice   of  Dissolution.  — When  a    partnership  is    dissolved 
notice  should  be  sent  to  all  with  whom  the  firm  has  had  dealings.    This 
is  for  the  protection  of  the  retiring  partner  not  that  he  may  avoid 
liabilities  already  incurred  but  that  he  may  avoid  future  obligations 
assumed  by  the  remaining  partners.     For  the  dissolution  as  to  third 
persons  takes  place  when  they  have  had  notice  of  it.     When  the  dis- 
solution occurs  by  operation  of  law  no  notice  is  necessary.     It  is  cus- 
tomary when  notice  is  necessary,  to  send  a  circular  letter  tp  each 


DISSOLUTION   OF   PARTNERSHIP.  179 

person  with  whom  the  firm  has  had  dealings  and  in  the  case  of  those 
who  have  had  no  dealings  with  the  firm  a  newspaper  notice  is  held  as 
sufficient. 

474.  Limited  Partnership. — This  is  a  species  of  partnership 
unknown  to  the  common  law,  but  is  in  this  country  a  creation  of 
statute.  It  has  been  introduced  into  many  States1  of  the  Union,  but 
is  not  now  a  common  form  of  partnership. 

The  object  is  to  enable  one  or  more  of  the  partners  to  be  free  from 
all  personal  liability  beyond  their  investments. 

While  the  statutes  differ  yet  the  following  provisions  are  quite  gen- 
eral: 

1.  There  must  be  one  or  more  general  partners  and  one  or  more 
special  partners. 

2.  The  names  of  the  special  partners  must  not  appear  in  the  firm 
name. 

3.  The  word  "Limited"  must  always  follow  the  firm  name. 

4.  Investments  of  the  special  partners  must  be  actually  paid  in. 

5.  The  partnership  agreement  must  be  in  writing,  acknowledged 
and  recorded  in  the  county  records  and  in  addition,  must  be  adver- 
tised for  a  certain  period  in  a  newspaper  of  general  circulation  in  the 
community.      The  provisions  of  the  statute  in  any  case  must  be 
strictly  complied  with  or  the  special  partner  will  lose  his  privilege. 

1  Alabama,  Connecticut,  Florida,  Georgia,  Illinois,  Indiana,  Kentucky,  Maryland,  Mass- 
achusetts, Michigan,  Mississippi,  New  Jersey,  New  York,  Pennsylvania,  Rhode  Island, 
South  Carolina,  Vermont,  Virginia. 


180  PRACTICAL  REVIEW. 


PRACTICAL  REVIEW. 

I.  A  and  B  compose  the  firm  of  A  &  Co.     B  withdraws  and  C  takes  his 
place,  the  name  remaining  the  same.     How  far  is  C  liable  for  the  firm  debts? 

II.  The  firm  of  A  is  composed  of  A  &  B.    C  holds  a  note  signed  A.    "Whose 
note  is  it  presumed  to  be? 

III.  A  and  B  were  partners  as  attorneys  at  law.     A  bought  real  estate 
for  firm  account,  and  gave  a  firm  note  without  the  knowledge  of  B.     Is  B 
liable  on  the  note,  and  why? 

IV.  One  partner  transfers  partnership  property  to  pay  his  individual  debt, 
the  creditor  having  no  knowledge  that  the  property  belongs  to  the  firm. 
Does  the  creditor  take  a  good  title? 

V.  Two  physicians  are  in  partnership.    One  of  them  is  guilty  of  inten- 
tional maltreatment  of  a  patient.     Is  the  other  partner  liable  to  the  patient? 

VI.  In  the  above  case  what  would  be  your  answer  in  case  one  physician 
was  guilty  of  unintentional  malpractice? 

VII.  A  and  B  are  partners  and  insolvent.     There  are  firm  creditors  and 
creditors  of  each  partner.     If  there  are  both  firm  and  individual  assets,  how 
will  they  be  divided?    How  if  no  firm  assets?    How  if  firm  assets  but  no 
individual  assets  of  A? 

VIII.  A  and  B  are  partners.     After  dissolution  one  partner,  without  the 
knowledge  of  the  other,  gives  a  note  in  the  firm  name  to  a  creditor  of  the 
firm.     What  are  the  rights  and  liabilities  of  the  parties? 

IX.  A,  who  has  property  in  business,  employs  B  to  take  charge  of  and  run 
the  business ;   it  being  agreed  that   they  should  divide  the  profit  and  loss. 
What  is  their  business  relation,  and  why? 

X.  A,  B  and  C  are  partners,  with  no  agreement  as  to  time  the  relation 
shall  exist.     If  A  and  B  collude  to  waste  the  assets,  what  can  C  do? 

XI.  A  and  B  are  partners,  engaged  in  the  iron  business.    A  buys  privately 
a  large  lot  of  iron,  which  he  holds  until  the  price  rises.     He  then  buys  it  on 
behalf  of  the  firm.     Are  the  other  partners  bound? 

XII.  A  and  B  are  partners  under  a  verbal  agreement  to  invest  equally,  and 
share  gains  and  losses.     B  has  private  interests  in  another  State,  and  goes 
there  to  attend  to  them,  remaining  for  eight  months.     What  remedy  has  A? 
Can  he  deduct  the  value  of  B's  services  from  his  share  of  the  profits? 


REVIEW  QUESTIONS. 

1.  Define  partnership.  2.  What  may  be  invested.  3.  How  does  partner- 
ship resemble  agency?  4.  How  is  a  partnership  formed?  5.  When  is  it 
formed  by  implication?  6.  When  the  agreement  is  in  writing  why  should  it 
be  full?  7.  What  should  the  contract  contain?  8.  How  many  kinds  of 
partners  are  there?  9.  Name  them.  10.  Name  and  define  the  most  common 
kind.  11.  What  is  a  dormant  partner?  12.  Suppose  he  becomes  known  as  a 
partner,  what  is  his  liability?  13.  What  is  nominal  partner?  14.  Is  he 
liable  as  a  partner?  15.  Who  may  become  partners?  16.  Are  there  any 
restrictions  on  the  firm  name?  17.  For  how  long  may  a  partnership  con- 
tinue? 18.  How  is  partnership  property  held?  19.  How  does  it  differ  from 
joint  tenancy?  20.  How  does  it  differ  from  tenancy  in  common?  21.  What 
is  the  rule  as  to  the  holding  of  real  estate  by  the  partnership?  22.  Has  the 
widow  of  a  partner  dower  in  firm  property?  23.  How  are  losses  and  gains 
presumed  to  be  shared?  24.  Are  all  persons  who  share  in  the  gain,  partners? 


REVIEW    QUESTIONS.  181 

25.  What  is  the  test  in  this  regard?  26.  What  is  the  general  rule  of  a  part- 
ner's authority?  27.  What  is  meant  by  the  scope  of  the  business?  28.  For 
what  may  a  partner  bind  the  firm?  29.  For  what  can  he  not  bind  the  firm? 
30.  Have  the  remaining  partners  any  remedy  in  case  one  partner  is  negligent 
or  acts  fraudulently,  and  they  are  thereby  injured?  31.  What  can  be  done 
when  one  appropriates  firm  business  to  himself?  32.  What  is  the  rule  of 
liability  of  a  partner?  33.  What  is  the  rule  as  to  the  application  of  firm 
assets  when  there  are  both  individual  creditors  and  also  creditors  of  the  firm? 
34.  In  what  ways  may  a  partnership  be  dissolved?  35.  How  may  it  be  dis- 
solved by  the  act  of  one  partner?  36.  Can  a  partner  assign  his  interest  in  a 
partnership?  37.  Will  the  purchaser  be  a  partner?  38.  What  are  some  of 
the  grounds  for  a  decree  of  dissolution?  39.  How  will  a  partnership  be  dis- 
solved by  operation  of  law?  40.  On  what  grounds  is  the  partnership  said  to 
be  dissolved?  41.  When  a  partnership  is  dissolved  what  powers  of  tha  part- 
ners cease?  42.  What  powers  remain?  43.  What  new  powers  are  created? 

44.  In  case  of  dissolution  by  death  of  a  partner  who  settles  up  the  business? 

45.  When  does  such  a  dissolution  take  place?    46.  When  does  a  dissolution 
in  general  take  effect?    47.  What  is  a  limited  partnership?    48.  What  are 
the  essentials  of  such  a  partnership?    49.  Does  your  State  provide  for  them? 


182  CORPORATIONS. 


CORPORATIONS. 


CHAPTER  XL. 

475.  Definition. — A  corporation  has  been  described  as  an  artificial 
person.     It  is,  iu  fact,  a  body  of  persons  associated  together  by  law, 
and  endowed  with  the  capacity  of  acting,  for  various  purposes,  as  a 
single  person.     It  differs  in  many  respects  from  a  partnership,  and 
one  of  the  points  of  difference  is  that  no  special  power  is  required  to 
form  a  partnership,  while  such  power  is  necessary  to  the  formation 
of  a  corporation.     The  corporation  remains  the  same  notwithstand- 
ing the  individuals  who  compose  it  may  change.     It  is,  therefore, 
said  that  "a  corporation  never  dies." 

476.  Importance. — Until  recently  corporations  for  business  pur- 
poses were  few  in  number,  and  of  little  importance.     It  is  stated  that 
no  such  corporation  existed  in  this  country  in  colonial  times.     But  a 
decided  change  has  been  brought  about,  and  corporations  are  formed 
now  for  the  transaction  of  almost  all  kinds  of  business  requiring 
large  amounts  of  capital,  or  the  co-operation  of  many  persons. 


477.  Classes.  —  Corporations  have  been  variously  divided,  the  fol- 
lowing classification  being  common: 

Sole. 

Aggregate. 
1.  Public  or  Municipal. 


I.  As  to  members.      < 


II.  As  to  functions.     -{    - 

i  a.  Religious. 

.Private. 


478.  Sole  Corporations.  —  As  its  name  implies,  this  is  a  corporation 
consisting  of  a  single  individual.  In  England  the  Sovereign,  and 
certain  church  officers,  were  early  held  to  be  sole  corporations,  and  iu 


CORPORATIONS.  183 

their  political  capacity  they  may  hold  real  estate,  and  it  will  pass  to 
their  successors  in  office.  In  some  of  the  colonies  this  rule  of  law 
was  acted  upon,  and  no  changes  made  in  it  when  a  separation  from 
the  mother  country  took  place.  Also  in  Illinois,  by  a  special  act  of 
the  legislature,  the  bishops  of  a  certain  religious  denomination  were 
made  corporations  sole  for  the  purpose  of  holding  title  to  the  real 
estate  belonging  to  the  church.  But  it  is  not  a  common  form  of 
corporation  in  this  country.  This  right  of  succession  of  a  corpora- 
tion sole  does  not  extend  to  personal  property,  but  is  confined  to 
real  estate. 

479.  Aggregate    Corporations. — This  is  the   kind  of    corporation 
described  in  the  definition,  section  475,  and  what  may  be  said  here- 
after about  corporations  in  general  will  apply  more  particularly  to  this 
class.     Such  a  corporation  is  composed  of  more  than  one  person — it 
is  an  association  of  individuals. 

480.  Public   or   Municipal   Corporations. — This  is  a  class  of  cor- 
porations  created   by   the   government   for   political   purposes.      It 
includes  cities,  towns,  villages,  park  and  drainage  districts.     They 
are  given  by  law  the  power  to  regulate  certain  local  matters,  and  in 
pursuance  of  this  power  to  pass  certain  ordinances,  which  must  not 
conflict  with  the  statutes.     Such  corporations  issue  no  stock. 

481.  Quasi  Corporations. — These  corporations  do  not  have  all  the 
functions  or  powers  of  the  ordinary  corporation.     They  may  have  the 
right  to  sue  and\>e  sued,  and  to  hold  property  for  certain  purposes. 
Their  functions  are  in  a  sense  public,  yet  they  do  not  pass  ordinances. 
Of  this  kind  are  school  districts,  counties,  commissioners  of  high- 
ways, etc. 

482.  Private  Corporations. — A  private  corporation  is  one  estab- 
lished by  private  enterprise.     It  matters  not  that  its  object  may  be 
of  a  public  nature.     A  railroad  company  is  a  private  corporation, 
notwithstanding  it  was  formed  to  serve  the  public  generally.     It  is  a 
private  corporation  if  it  issues  stock,  and  the  stock  is  held  by  private 
individuals. 

483.  Religious  Corporations. — Special  provisions  are  made  by  most 
States  for  the  regulation  of  the  temporal  affairs  of  religious  organiza- 
tions.    A  corporation  organized  especially  for  this  purpose,  and  in 


184  CORPORATIONS. 

accordance  with  these  provisions,  is  called  a  religious  corporation. 
They  do  not  issue  stock,  and  their  property  is  usually  held  by  a  board 
of  trustees. 

484.  Lay  Corporations. — These  are  divided  into  two  classes,  chari- 
table and  civil.     Of  the  former  class  are  hospitals  and  colleges  which 
are  dedicated  to  charitable  purposes,  and  of  the  latter  class  the  great 
body  of  private  corporations  which  are  created  for  pecuniary  profit. 
The  latter  issue  stock,  and  usually  hold  their  property  in  the  name 
of  the  corporation. 

485.  How  a   Corporation   is   Created. — From  the  definition  of  a 
corporation  it  might  readily  be  inferred  that  it  cannot  exist  of  its 
own  volition.     It  is  endowed  with  its  rights  by  law,  that  is  by  the 
sovereign  power,  which  is  the  State  or  United  States.     They  are 
created  in  one  of  three  ways,  viz. :  (1)  By  prescription,  (2)  by  special 
act  of  the  legislature,  and  (3)  by  general  statute. 

486.  By  Prescription. — By  this  is  meant  that  while  no  grant  of 
power  can  be  shown,  yet  the  power  has  been  exercised  for  so  long  a 
time  that  the  courts  will  presume  there  was  once  a  grant  of  power  in 
existence,  which  has  now  been  lost.     It  has  been  held  that  an  exer- 
cise of  the  functions  of  a  corporation  for  thirty  years  gives  to  the  cor- 
poration a  prescriptive  right. 

487.  By  Special  Act  of  the  Legislature. — In  England  charters  are 
granted  by  the  sovereign  or  parliament.     In  this  country  the  legis- 
lature only  is  the  source  of  all  special  charters.     Application  is  made 
to  the  legislature  by  those  wishing  to  associate  themselves  as  a  cor- 
poration.     A  regular  bill  is  passed  embodying  the  special  powers 
and  privileges  granted,  and  this  bill  or  charter  is  viewed  in  the  light 
of  a  contract  between  the  State  and  the  corporation.     The  powers 
therein  granted  cannot  be  recalled  or  revoked  unless  the  bill  contains 
a  provision  to  that  effect.     Designing  men,  with  abundant  means  at 
their  command,  were  often  able  to  secure  from  legislatures  valuable 
concessions  which  were  unrevokable.     For  this  reason  the  constitu- 
tions of  many  States  now  prohibit  their  legislatures  from  creating 
corporations  in  this  way. 

488.  By  General  Statute. — It  is  now  the  common  practice  for  each 
State  to  pass  what  is  called  a  general  incorporation  act,  by  complying 
with  whicn  corporations  may  organize.     The  effect  of  this  is  to  ren- 


CORPORATIONS.  185 

der  the  formation  of  a  corporation  a  comparatively  easy  matter,  and 
to  this,  as  much  as  anything  else,  is  due  the  great  popularity  of  such 
bodies  and  their  rapid  growth  in  number.  These  acts  specify  the 
contents  of  the  application  to  be  filed,  and  specify  the  powers  of  the 
corporation.  Congress  has,  by  special  act,  incorporated  two  United 
States  banks,  and  the  ordinary  national  banks  are  organized  under  a 
general  national  statute. 

489.  A  Corporator. — A  corporator  is  one  of  those  to  whom  a  char- 
ter is  granted,  or  who  file  an  application  to  be  appointed  commission- 
ers, with  power  to  solicit  subscriptions  for  and  organize  a  certain 
corporation.     The  number  of  corporators  or  commissioners  is  fixed 
by  law,  but  it  is  usually  from  three  to  seven.     They  being  the  orig- 
inators of  the  proposed  corporation,  fix  upon  a  name,  the  amount  of 
capital  stock,  and  the  general  purpose  of  Its  existence.     Upon  receipt 
of  their  authority,  or  commission,  they  may  proceed  to  open  subscrip- 
tion books  for  the  capital  stock. 

490.  A  Subcriber  is  one  who  has  signed  a  subscription  list,  agree- 
ing to  take  some  of  the  original  issue  of  stock  from  the  corporation. 
When  the  stock  is  finally  issued,  he  is  then  often  called  a  shareholder 
or  a  stockholder.     This  contract,  like  any  other,  may  be  enforced 
against  him,  and  if  he  fail  to  pay  for  his  stock  according  to  agree- 
ment, he  can  be  sued  therefor,  or  his  stock  may  be  declared  forfeited. 
It  is,  however,  an  implied  part  of  a  contract  of  subscription  that  it  is 
to  be  binding  against  the  subscriber  only  after  the  full  capital  stock 
has  been  subscribed.     Indeed,  by  the  law  of  many  States,  no  charter 
will  be  granted  until  the  capital  stock  has  all  been  sold. 

491.  Capital  Stock. — Capital  stock  is  the  sum  fixed  by  the  cor- 
porate charter  as  the  amount  paid  in  or  to  be  paid  by  the  stockhold- 
ers.    This  is  to  be  clearly  distinguished  from  the  property  possessed 
by  the  company  or  the  amount  actually  paid  in.     The  capital  stock 
remains  fixed,  though  the  value  of  the  property  of  the  corporation 
may  fluctuate  widely. 

492.  Organization. — When  the    capital  stock  has  all  been   sub- 
scribed, the  corporators  or  commissioners  may,  by  giving  notice,  call 
a  meeting  of  the  subscribers  for  the  purpose  of  electing  officers, 
making  by-laws,  etc. 


186  CORPORATIONS. 

493.  A  By-Law  is  a  permanent  rule  of  action,  in  accordance  with 
which  the  corporate  affairs  are  to  be  conducted.     The  by-laws  are 
made  by  the  stockholders  or  board  of  directors  in  meeting  assembled. 

After  the  election  of  officers  and  the  making  of  by-laws,  etc.,  the 
corporators  make  their  report  to  the  proper  State  official,  usually  the 
Secretary  of  State.  If  all  is  found  to  be  in  accordance  with  law,  a 
charter  is  issued,  upon  receipt  of  which  the  corporation  is  authorized 
-to  begin  business. 

494.  Charter. — A  charter  is  the  instrument  which  creates  the  cor- 
poration, and  which  enumerates  and  defines  its  powers  and  privileges. 
When  a  corporation  is  created  by  general  statute,  no  powers  can  be 
acquired  in  addition  to  the  powers  specified  in  the  statute. 

495.  Issue  of  Stock. — The  capital  stock  is  divided  into  shares  of  a 
specified  face  value,  and  each  stockholder  is  entitled  to  as  many  shares 
of  the  stock  as  the  proportion  which  his  subscription  bears  to  the 
whole.     As  each  subscriber  pays  his  subscription,  either  in  money 
or  property,  according  to  agreement,  there  is  issued  to  him  one  or 
more  certificates  of  stock.     This  certificate  may  be  in  the  following 
form: 


No.  18.       Incorporated  under  the  Laws  of  the  State  of  Illinois.      10  Shares. 

The  Chicago  Time  Lock  Company. 

Capital  Stock,  $50,000.  CHICAGO,  ILLINOIS.  500  Shares  at  $100. 

This  Certifies,  That  GEORGE  REIS  is  the  owner  of  Ten  Shares  of  the 
Capital  Stock  o/The  Chicago  Time  Lock  Company,  fully  paid  and  non- 
assessable, transferable  only  at  the  office  of  the  company,  on  the  return  of 
this  Certificate. 

IN  WITNESS  WHEREOF,  the  President  and  Secretary 
have  hereunto  subscribed  their  names  and  caused  the  seal 
[SEAL]  of  the  company  to  be  affixed  at  Chicago,  III.,  this  25th  day 

of  August,  A  D.  1901. 
Henry  Templeton,  Sec.  S.  M.  Erskine,  Pres. 


This  is  the  only  evidence  the  stockholder  has  that  he  is  a  stock- 
holder in  the  corporation,  and  therefore  entitled  to  the  rights  and 
privileges  of  such.  Stock  is  personal  property  and  not  real,  even 
though  all  the  corporation  may  own  be  real  property.  It  is  a  chose 
in  action. 

496.  Classes  of  Stock. — Stock  may  be  either  common  or  preferred. 
Common  stock  entitles  the  owner  to  a  pro  rata  of  dividends  equally 
with  all  other  holders  of  stock  except  preferred  stockholders. 


POWEBS   OF   CORPORATIONS.  187 

By  preferred  stock  is  meant  stock  which  entitles  its  owners  to  divi- 
dends, up  to  a  certain  per  cent,  out  of  the  net  profits,  before  or  in 
preference  to  the  holders  of  the  common  stock.  By  watered  stock  is 
meant  stock  which  is  issued  as  fully  paid  up,  when  in  fact  the  whole 
amount  of  the  par  value  has  not  been  paid  in.  By  deferred  stock  is 
meant  stock  upon  which  the  payment  of  dividends  is  expressly  post- 
poned until  some  other  class  of  shareholders  are  paid  a  certain  divi- 
dend. 


CHAPTER    XLI. 
POWERS   OF  CORPORATIONS. 

497.  Implied  Powers  of  Corporations. — The  common  law  ascribes 
to  all  corporations  certain  incidental  rights  and  powers,  whether  they 
are  expressly  enumerated  in  the  charter  or  not.     These  are  as  fol- 
lows: 

I.  To  have  succession. 

II.  To  sue  and  be  sued. 

III.  To  purchase,  hold  and  convey  property. 

IV.  To  have  a  common  seal. 
V.  To  make  by-laws. 

VI.  To  elect  officers. 
VII.  To  make  contracts. 

498.  Corporations  to  Have  Succession. — By  this  is  meant  that  the 
corporation  may  exist  even  though  all  the  stockholders  may  die  or 
dispose  of  their  stock.     In  case  of  the  death  of  a  stockholder,  his  per- 
sonal representatives  take  his  place  as  a  stockholder,  but  not  as  an 
officer.     It  has  been  said  that  "a  corporation  never  dies,"  but  this 
does  not  mean  that  it  exists  forever,  but  only  for  the  time  mentioned 
in  the  charter  or  in  the  statute.     This  power  of  succession  is  a  neces- 
sary element  in  the  life  of  a  corporation  with  a  large  list  of  stock- 
holders.    If  the  death  of  a  stockholder  dissolved  the  corporation,  as 
it  does  a  partnership  in  case  of  the  death  of  a  partner,  no  undertaking 
of  any  magnitude,  or  requiring  time  for  its  consummation,  could  be 
completed. 


188  CORPORATIONS. 

• 

499.  To    Sue    and    be    Sued. — A  corporation    has  the  right  to 
institute  suits  in  its  own  name,  in  all  cases  where  an  individual, 
under  like  circumstances,  would  have  a  right  of  action.     It  is  neces- 
sary that  a  corporation,  for  its  own  complete  protection,  should  have 
this  power  to  sue  in  its  own  name  instead  of  in  the  names  of  its 
stockholders. 

500.  To    Purchase    and    Convey   Property. — At    common  law  in 
America  a  corporation  may  purchase  and  convey  land.     The  only 
limitation  upon  this  right  of  corporations  is  that  the  purchase  must 
be  a  natural  incident  of  the  business  specified  in  the  charter,  that  is, 
it  must  be  in  accordance  with  the  purpose  of  the  corporation.     The 
States  have  quite  generally  followed  the  English  statute  of  wills,  and 
have  restricted  certain  classes  of  corporations  in  the  taking  of  realty 
by  a  devise.     The  object  of  this  is  to  prevent  large  bodies  of  land 
from  falling  into  dead  hands,  hence  the  statute  is  called  the  statute 
of  mortmain. 

501.  To  Have  a  Common  Seal. — A  corporation  is  an  artificial  per- 
son.    Natural  persons  are  required  by  common  law  to  have  a  private 
seal,  so  corporations  are  required  to  use  a  common  seal  in  all  cases 
where  a  natural  person  would  be  required  to  use  a  private  seal.     It 
was  formerly  supposed  that  a  corporation  could  only  manifest  its 
intention  by  its  common  seal,  but  the  rule  is  now  as  stated  above. 

502.  To  Make  By-Laws. — "We  have  previously  observed  (sec.  493), 
that  a  corporation  by  its  stockholders  can  make  by-laws.     But  if  such 
power  be  given  to  the  board  of  directors  a  majority  may  pass  such 
laws.     The  by-laws  must  be  framed  strictly  within  the  limits  of  the 
charter,  and  in  accordance  with  the  laws  of  the  land. 

503.  To    Elect    Officers. — A    corporation    transacts    its    business 
through  its  officers  and  agents,  and  not  through  its  stockholders. 
The  right  to  choose  these  officers,  then,  is  necessarily  implied.     In 
the  election  of  officers  a  stockholder  generally  has  a  vote  for  each 
share  of  stock  he  may  own.     Consequently,  if  he  owns  a  majority  of 
the  stock  he  can  control  the  election.     A  majority  of  the  votes  cast 
will  elect,  even  though  only  a  small  proportion  of  the  shares  are 
voted  at  all.     To  obviate  this,  and  to  give  the  minority  stockholders 
a  minority  representation  on  the  board  of  directors,  constitutional 
provisions  are  found  in  a  number  of  States.1     This  is  effected  by  a 

1  California,  Illinois,  Missouri,  Nebraska,  Pennsylvania,  West  Virginia. 


POWEBS  OF  CORPOBATIONS.  189 

system  of  cumulative  voting.  Thus,  if  there  are  six  directors  to  be 
elected,  a  stockholder  who  owns  one  hundred  shares  may  cast  six 
hundred  votes ;  and  these  he  may  cast  entirely  for  one,  or  distribute 
them  among  the  six,  as  he  may  choose. 

The  statutes  quite  generally  recognize  the  right  of  a  stockholder 
to  vote  by  proxy.  This  right  did  not  exist  by  common  law,  but  may 
be  recognized  by  the  by-laws.  No  particular  form  of  proxy  is  neces- 
sary, though  it  should  be  in  writing  and  signed. 

It  is  also  held  as  necessary  for  the  protection  of  the  corporation 
that  its  officers  or  agents  may  be  removed  for  jast  cause,  but  the 
latter  is  a  power  that  must  be  expressly  granted  in  the  charter  or 
the  statute. 

"Know  ail  dfcen  bg  (Tbeae  Presents,  That  I,  Edward  o.  Folsom,  do 
hereby  constitute  and  appoint  Charles  N.  Crandle  \my  true  and  lawful  attor- 
ney for  me  and  in  my  name,  place  and  stead,  to  vote  as  my  proxy  at  a  certain 
election  of  directors  of  the  Chicago  Steel  and  Iron  Company,  to  be  held  at  the 
office  of  the  company  on  the  day  of  190  ,  according  to  the  num- 

ber of  votes  I  should  be  entitled  to  vote  if  personally  present. 

In  Witness  Wliereof  I  have  hereunto  set  my  hand,  in  the  City  of  Chi- 
cago, State  of  Illinois,  this  15th  day  of  August,  1901. 

EDWARD  0.  FOLSOM. 
Signed  and  delivered  in  the  presence  of 
M.  M.  LINK. 

FORM  OF  PROXY. 

504.  To  Make  Contracts. — To  make  contracts  is  the  real  object  of 
most  private  corporations,  and  so  patent  is  it  that  it  seems  hardly 
necessary  to  refer  to  it  as  an  incidental  power. 

A  corporation  may  borrow  money  and  may  issue  notes,  bills  and 
acceptances  for  the  purposes  of  their  business,  but  they  have  no 
authority  to  endorse  or  guarantee  for  accommodation.  It  may  mort- 
gage its  real  estate  and  personal  property.  It  cannot  make  loans  of 
money  unless  its  regular  business  involves  loaning,  but  if  it  does  loan 
money  the  borrower  must  return  it. 

A  secured  a  judgment  against  B  in  a  justice  court.  B  took  an  appeal  to  a 
higher  court  and  in  doing  so  was  required  to  give  a  bond  with  a  surety.  C,  a 
corporation,  signed  the  bond  as  surety.  It  was  decided  that  an  ordinary  cor- 
poration could  not  bind  itself  as  a  surety  as  it  was  not  in  the  scope  of  its 
charter.  181  III.  44.  11  Wis.  306.  70  la.  541. 

505.  Torts. — It  is  now  the  settled  rule  that  a  corporation  is  liable 
for  the  acts  of  its  agents  in  the  course  of  its  business,  and  of  their 
employment,  the  same  as  if  it  were  an  individual.     (See  sec.  435.) 


190  CORPORATIONS. 

Corporations  have  been  held  liable  for  assault  and  battery  committed 
by  their  agents  in  executing  the  rules  of  the  corporation;  for  trespass; 
for  malicious  prosecution  and  for  conspiracy.  A  corporation  may 
even  be  indicted,  but  of  course  cannot  be  imprisoned,  though  its 
officers  may  be. 

506.  Name  of  a  Corporation. — A    corporation,  like   all    persons, 
must  have  some  means  of  identification.     For  this  purpose  a  name  is 
chosen,  and  it  is  by  this  name  that  it  transacts  corporate  business. 
The  right  of  a  corporation  to  the  exclusive  use  of  its  chosen  name 
is  generally  recognized  by  statute,  but  it  is  usually  protected  by  the 
courts  independent  of  statute.     The  corporation  has  neither  the  right 
nor  the  power  of  itself  to  change  the  corporate  name,  but  it  may  do 
so  by  the  consent  of  the  authority  granting  the  charter.     There  is 
little  restriction  upon  the  choice  of  a  name  for  a  corporation,  but  it 
is  sometimes  prescribed  by  statute  that  it  shall  begin  with  "The'* 
and  end  with  "Company,"  "Corporation,"  or  other  synonom^Mis 
term.     This  is  the  law  in  Colorado  and  Ohio,  and  perhaps  otlrer 
states. 

507.  By  What  Law  a  Corporation  is  Governed. — The  general  rule 
is  that  the  existence  of  a  foreign  corporation  is  recognized  for  all 
purposes  and  in  all  respects,  except  those  specially  prohibited  by  the 
domestic  law.      It   may   sue  in  any  state  where  it  has  rights  to 
defend,  and  it  may  also  carry  on  its  business  anywhere,  but  it  cannot 
move  from    the  state  where  created  to  another,  although  it  may 
maintain  offices  in  each.     Its  property  is  subject  to  the  laws  of  the 
state  where  it  exists. 

508.  As  Trustees. — It  was  formerly  supposed  that  a  corporation 
could  not  act  as  a  trustee,  but  it  is  now  common  for  them  to  organize 
for  this  very  purpose.     They  also  act  as  guardians  of  property,  execu- 
tors, administrators,  etc.,  and  indeed  there  is  often  economy  in  their 
doing  so,  for  having  many  clients,  they  can  offer  the  superior  service 
of  trained  agents  at  a  minimum  cost.     They  are  also  organized  to 
guarantee  the  title  of  realty  to  intending  purchasers. 

509.  Liabilities   of  a   Stockholder. — One    thing  that  has  tended 
to    popularize    corporations,     more    than    any    other,    is    that    at 
common  law  the  stockholders  are  not  liable  for  the  corporate  debts. 
If  the  corporation  should  become  bankrupt,  the  stockholders  may  lose 
their  stock,  and  if  they  have  not  fully  paid  for  it  they  are  liable  for 


POWERS   OF   CORPORATIONS.  191 

the  unpaid  amount,  for  the  creditors  are  entitled  to  this  full  protec- 
tion. Creditors  cannot  resort  to  it  as  a  trust  fund,  however,  until 
the  corporate  assets  have  been  exhausted.  In  some  states  by  statute 
the  stockholder  is  liable  for  double  the  amount  of  his  stock.  This  is 
also  the  liability  of  a  stockholder  in  a  National  Bank.  In  still  other 
states  the  stockholder  is  liable  the  same  as  a  partner.  The  corpora- 
tion has  a  lien  upon  a  stockholder's  stock  for  debts  due  the  company 
by  the  stockholder.  This  lien  may  arise  by  charter,  by  statute  or  by 
by-law. 

510.  Rights  of  Stockholders. — The  stockholder  has  the  right  at 
common  law  to  examine  or  inspect,  at  any  reasonable  time,  the  books 
and  records  of  the  corporation.     This  right  is  also  conferred  in  many 
states  by  statute.     He  has  the  right  to  compel  a  director  guilty  of 
negligence  to  make  good  the  loss  occasioned  thereby  to  the  corpora- 
tion.    He  also  has  the  right  to  attend  meetings  of  the  stockholders 
and  to  participate  therein. 

511.  Transfer  of  Stock. — To  transfer  a  share  of  stock  there  are 
generally  two  steps  to  be  taken.     First,  the  assignment  of  the  cer- 
tificate to  the  transferee,  and  second,  the  perfecting  of  that  assign- 
ment by  surrendering  the  certificate  to  the  corporation  and  obtaining 
an  entry  on  the  transfer  books  of  the  change  of  ownership.     Usually 
on  the  back  of  the  certificate  is  printed  a  blank  assignment,  which  is 
filled  out  by  the  transferrer,  giving  the  proper  officer  of  the  corpora- 
tion power  of  attorney  to  transfer  the  ownership  of  the  stock  on  the 
books  of  the  company  to  the  transferee  named.     This  method  does 
not  require  the  presence  of  the  transferrer,  and  is  much  used  for 
this  reason.     The  old  certificate  may  be  taken  up,  canceled,  and  a 
new  one  issued  in  its  stead.     Sometimes  the  assignment  mentioned 
above  is  filled  out,  but  the  name  of  the  transferee  is  omitted ;  by  this 
means  the  certificate  may  pass  from  hand  to  hand  by  delivery,  and 
has  led  some  to  consider  it  as  a  quasi  negotiable  paper. 

512.  Dissolution  of  Corporation. — A  corporation  may  be  dissolved 
by  the  expiration  of  the  time  for  which  it  was  created ;  by  act  of  the 
legislature ;  by  surrendering  its  charter,  or  by  forfeiture  of  its  fran- 
chise. 


192  REVIEW    QUESTIONS. 


REVIEW   QUESTIONS. 

1.  Define  a  corporation.  2.  Is  any  authority  necessary  to  the  formation 
of  a  corporation,  and  if  so  what  is  the  source  of  that  authority?  3.  How  are 
corporations  divided?  4.  Are  there  any  sole  corporations  in  the  country?  5. 
What  is  a  public  corporation?  6.  What  is  a  quasi  corporation?  7.  In  what 
ways  may  a  corporation  be  created?  8.  What  is  meant  by  a  special  charter? 
9.  How  are  corporations  now  generally  created?  10.  Why  is  this  the  case? 
11.  Does  congress  ever  create  corporations  by  special  act?  12.  Who  is  a  cor- 
porator? 13.  Who  is  a  subscriber?  14.  Define  capital  stock.  15.  What  is 
the  usual  procedure  in  the  organization  of  a  corporation?  16.  What  is  a 
by-law  and  who  makes  it?  17.  What  is  a  charter?  18.  How  is  stock  issued? 
19.  What  kind  of  property  is  stock?  20.  Name  and  define  the  different  kinds 
of  stock.  21.  What  is  meant  by  "watering  stock"?  22.  What  are  the 
implied  powers  of  a  corporation?  23.  What  is  meant  by  "succession"?  24. 
Why  do  corporations  have  a  common  seal?  25.  How  are  officers  elected? 
26.  Explain  the  manner  of  voting.  27.  What  is  meant  by  a  system  of 
"cumulative  voting"?  28.  Is  it  in  vogue  in  your  State?  29.  Does  the  right 
to  vote  by  proxy  exist  at  common  law?  30.  How  far  is  "a  corporation  liable 
for  the  torts  of  its  agents?  31.  What  contracts  may  a  corporation  make? 
32.  By  what  law  is  a  corporation  governed?  33.  What  are  the  liabilities  of  a 
stockholder?  34.  What  are  the  rights  of  a  stockholder?  35.  How  is  stock 
transferred?  36.  How  may  a  corporation  be  dissolved?  37.  Through  whom 
does  a  corporation  do  business? 


JOINT   STOCK    COMPANIES.  193 


JOINT  STOCK  COMPANIES. 


CHAPTER  XLII. 

513.  Explanation. — Joint  stock  companies  occupy  a  kind  of  middle 
ground  between  a  partnership  on  the  one  side  and  a  corporation  on 
the  other.     In  many  respects  they  resemble  each.     In  England  they 
have  been  numerous,  and  formerly  in  this  country  they  were  much 
more  numerous  than  now.     The  ease  with  which  corporations  can 
be  organized  under  the  general  incorporation  acts,  which  have  been 
passed  by  the  various  states,  has  had  the  effect  of  increasing  the 
number  of  corporations  at  the  expense  of  the  number  of  joint  stock 
companies. 

514.  How  Formed. — A    joint  stock  company   being  a  voluntary 
association,  it  can  be  formed  for  any  lawful  purpose.1     It  is  organized 
in  much  the  same  manner  as  a  partnership,  but  is  preferable  to  a 
partnership  when  a  large  number  of  partners  are  interested,  for  the 
business  is  conducted  by  the  officers  or  agents  in  the  same  manner  as 
in  a  corporation.     Those  who  are  to  compose  the  membership   of 
a  joint  stock  company  enter  into  articles  of  agreement  as  to  how  the 
business  shall  be  conducted.     This  agreement  is  at  once  the  charter 
and  by-laws  of  the  association,  and  by  it  the  powers  and  duties  of 
the  members  are  to  be  judged,  their  liabilities  being  left  to  the  law 
itself. 

515.  What  Articles  Should  Contain. — The  articles  provide  for  the 
manner  of  forming  the  company ;  for  the  amount  of  the  capital  stock ; 
for  the  number  and  par  value  of  the  shares ;  for  the  manner  of  trans- 
ferring the  shares ;  for  the  number  and  kinds  of  officers  and  the  man- 
ner of  their  appointment ;  for  regular  meetings  of  the  stockholders 
and  the  manner  of  calling  special  meetings ;  for  the  manner  of  voting 

1  In  Illinois  and  Louisiana  they  have  been  held  as  illegal  at  common  law.    But  this  is 
certainly  not  tne  weight  of  authority. 


194  JOINT   STOCK    COMPANIES. 

at  such  meetings,  and  in  general  for  the  entire  management  of  the 
association. 

Sometimes  the  articles  provide  that  the  property  of  the  association 
shall  be  held  by  a  board  of  trustees,  in  whose  name  the  business  is  to 
be  conducted.  This  is  valid  at  common  law,  but  many  states1  have 
special  statutes  expressly  specifying  the  objects  for  which  a  trust 
may  be  created,  and  these  statutes  should  always  be  consulted  when 
involved. 

516.  By  Implication. — A  joint  stock  company  may  also  exist  by 
implication.     Where  there  has  been  an  ineffectual  attempt  at  incor- 
poration the  result  may  be  a  joint  stock  company.     Thus  after  the 
charter  of  a  corporation  has  expired,  if  the  company  still  continues 
to  do  business,  they  do  so  as  a  joint  stock  association. 

517.  Liability    of   Stockholders.  —  The   stockholders  in  a  joint 
stock   association   are  liable   to  its  creditors  as  partners,  and  the 
ordinary  rules  of  partnership  apply  as  between  themselves,  includ- 
ing the  right  to  contribution.     A  member's  subscription  may  be 
enforced,  as  in  a  corporation. 

Under  the  peculiar  statute  in  New  York  a  member  may  deal  with 
and  sue  the  company,  the  same  as  in  a  corporation,  but  it  is  said 
that  this  right  does  not  exist  at  common  law.  A  member  who 
transfers  his  stock  is  liable  for  precedent  debts  of  the  association. 

518.  Joint  Stock  Companies  Compared  with  Partnerships  and  Cor- 
porations.— From  what  has  been  said  it  will  be  seen  that  in  their  for- 
mation and  the  liability  of  members,  joint  stock  companies  resemble 
partnerships,  but  in  their  organization,  manner  of  doing  business 
and  election  of  officers,  they  are  like  corporations.     They  also  resem- 
ble corporations  in  having  the  "power  of  succession."     They  do  not, 
however,  have  a  common  seal. 

In  voting  each  member  has  one  vote,  regardless  of  the  amount  of 
his  investment. 

519.  How  May  Sue  and  be  Sued. — A  joint  stock  company  cannot 
sue  by  common  law,  as  can  a  corporation  by  and  in  its  name,  but  in 
the  name  of  its  members. 

520.  Dissolution. — On  the  dissolution  of  a  joint  stock  company, 
either  by  expiration  of  time  or  otherwise,  the  directors  or  trustees 

1  California,  Connecticut,  Georgia,  Kentucky,  Michigan,  Minnesota,  North  Carolina, 
Pennsylvania. 


JOINT   STOCK   COMPANIES.  195 

are  bound  to  convert  the  property  into  cash,  pay  the  debts  and  dis- 
tribute the  remainder.  When  a  certain  time  is  fixed  in  the  articles 
for  the  dissolution  of  the  company,  it  cannot  be  dissolved  at  the 
instance  of  a  member  before  that  time.  It  may  be  dissolved  by 
decree  of  court  when  the  enterprise  becomes  impracticable. 

521.  Social  and  Benevolent  Clubs. — A  joint  stock  association 
should  be  distinguished  also  from  social  and  benevolent  clubs,  which 
do  not  have  a  capital  stock. 


196  INSURANCE. 


INSURANCE. 


CHAPTER  XLIII. 

522.  The  Contract  of  insurance  is  one  by  which  the  insurance  com- 
pany agrees  for  a  consideration  to  reimburse  the  other  party  to  the 
contract,  or  some  one  they  may  agree  upon,  for  a  certain  loss,  or 
in  case  of  a  certain  contingency.     It  is  a  contract  every  year  becom- 
ing more  popular.     It  enables  the  business  man  to  count  with  cer- 
tainty in  advance  upon  the  cost  of  certain  risks  which  are  incidental 
to  every  business  undertaking.     By  it  also  a  man  of  frugal  means  is 
enabled  to  make  suitable  provision  for  his  family  in  case  of  his  death 
or  injury.     Almost  every  year  sees  some  new  risk   against  which 
insurance  can  be  taken,  but  these  may  all  be  classified  under  the 
following  general  heads:     (1)   Fire;    (2)    Life;    (3)    Casualty;    (4) 
Marine. 

FIRE    INSURANCE. 

523.  Parties  and  Terms. — The  business  is  nearly  always  done  by 
incorporated  companies,  organized  for  that  purpose.     The  company 
is  called  the  insurer,  the  owner  of  the  property  in  question  is  called 
the  insured.     The  contract  of  insurance  is  the  policy ,  and  the  con- 
sideration is  called  the  premium. 

524.  Companies. — There  are  two  kinds  of  companies,  stock  and 
mutual.     The  stock  company  is  usually,  if  not  always,  a  corporation 
which  pledges  its  whole  capital  and  receipts  to  the  payment  of  losses. 
This  kind   of  company   takes  the   contract  for  a  certain  premium, 
which  is  agreed  upon  in  advance. 

In  a  mutual  company  the  amount  of  premium  to  be  paid  depends 
on  the  amount  of  losses  which  the  company  may  sustain  for  the 
period.  A  small  cash  payment  is  usually  required,  and  a  con- 
ditional note  is  taken  for  a  much  larger  sum.  If  the  losses  of  the 
company  exceed  a  certain  amount,  then  the  makers  of  the  notes  are 
called  upon  pro  rata.  While  the  insured  is  a  member  of  the  com- 


FIRE    INSURANCE.  197 

pany,  yet  he  cannot  be  called  upon  for  more  than  the  amount  of  his 
note.  Mutual  companies  usually  have  no  capital,  or  at  least  only  a 
small  one,  the  security  of  the  insured  being  its  receipts.  Mutual 
companies  are  not  now  so  common  in  fire  insurance  as  formerly,  but 
they  are  still  often  found  in  the  country  districts. 

525.  Insurable  Interest. — The  contract  of  insurance  is  a  wagering 
contract.     The  company,  for  a  small  sum,  takes  its  chances  on  the 
destruction  of  the  property.     If  it  sustains  a  loss  on  one  risk  it  will 
make  it  up  on  the  many  others  on  which  no  loss  occurs.     The  loss 
is  sure  to  occur,  and  some  one  must  sustain  it,  for  this  reason  the 
law  upholds  contracts  of  insurance  and  favors  them.     It  permits  the 
insured  to  provide  against  this  risk  of  loss  on  account  of  the  bene- 
ficial effects  which  follow.     It  does,  however,  require  that  some  loss 
shall  occur  to  the  insured  in  case  of  fire.     It  is  against  this  loss  that 
insurance  may  be  taken.     The  party  insured,  then,  must  have  some 
interest  in   the  property  in   question,    not  only   at  the  time  of  the 
insurance,  but  at  the  time  of  the  loss. 

526.  A  Divided  Interest. — It  is  not  necessary  that  one  person  own 
the  entire  property  in  order  to  have  an  insurable  interest.     Different 
persons  may  have  different  and  distinct  interests  in  the  same  prop- 
erty, and  the  law  permits  each  to  protect  his  interest  by  means  of 
insurance.     A  familiar  instance  of  this  is  the  case  of  a  mortgagor 
and  mortgagee.      Thus  commission  merchants,  having  an  interest 
in  property  in  their  possession  to  the  extent  of  their  commissions 
may  insure,  as  may  also  the  owner,  and  it  has  been  held  that  each 
can  insure  to  the  full  value  of  the  property.     It  has  also  been  held 
by  the  Supreme  Court  of  the  United  States  that  a  party  occupying 
premises  under  an  agreement  to  purchase,  had  an  insurable  interest 
up  to  the  value  of  the  property,  even  though  the  real  owner  also  had 
it  insured.     The  general  rule  is  that  a  person  cannot  insure  his 
property  for  its  full  value.     This  is  not  a  rule  of  law,  but  of  the 
companies. 

527.  Agents. — The  company   does  its  business   through   agents, 
appointed  in  the  several  localities  where  it  is  proposed  to  do  business. 
They  act  for  the  company  and  make  reports  to  the  head  office  of  the 
facts  connected  with  each  risk.     These  agents  are  governed  in  all 
respects  by  the  law  of  agency,  and  notice  to  them  is  notice  to  the 
company  which  they  represent.     They  are,  however,  special  agents. 


198  FIEE    INSURANCE. 

528.  Board   Companies. — Most    companies  are  members    of    the 
board  of  underwriters.     This  is  an  association  of  companies  formed 
for  their  mutual  benefit.    A  committee  is  chosen  and  sent  to  each  town 
or  city  where  these  companies  propose  to  do  business.     They  organize 
the  local  agents  into  a  local  board  of  underwriters,  and  view  and 
inspect  the  entire  business  portion  of  the  place.     They  note  for  what 
purpose  each  building  is  occupied,  the  structure  of  the  building, 
whether  of  brick,  stone  or  wood,  the  kind  of  roof,  the  "exposures," 
that  is,  its  proximity  to  other  buildings,  in  fact  they  observe  all  mat- 
ters that  tend  to  increase  or  decrease  the  risk  from  fire.     They  then 
fix  from  these  facts  the  rate  of  premium  that  each  building  should 
pay,  and  the  rate  that  the  contents  should  pay.     This  is  called  the 
"board  rate,"  and  no  agent  of  a  board  company  is  permitted  to  take 
it  for  less. 

529.  The  Policy. — This  is  the  contract  between  the  insured  and 
the  insurer,  and  as  each  company  always  uses  its  own  printed  form, 
which  differs  somewhat  from  the  others,  it  should  always  be  consulted 
in  case  of  dispute.     It  usually  contains  a  minute  description  of  the 
premises  or  property  insured,  the  amount  insured,  the  premium  paid, 
or  to  be  paid,  and  the  time  for  which  the  insurance  is  to  continue. 
The  latter  is  exact  to  an  hour.    Most  policies  expire  at  twelve  o'clock, 
noon.     The  object  for  which  the  premises  are  to  be  used  should 
always  be  stated,  for  on  it  depends  the  degree  of  risk. 

530.  Conditions  in   the    Policy. — Policies  usually  contain  condi- 
tions, which  are  expressly  made  a  part  of  the  instrument.     Their 
fulfillment  is  in  such  cases  a  condition  precedent  to  a  right  of  recov- 
ery.    One  of  the  common  conditions  is  that  the  insured  shall  not 
alter  the  premises  so  as  to  increase  the  risk.     He  cannot,  except 
with  the  consent  of  the  company,  erect  other  buildings  within  a  cer- 
tain limit  of  the  insured  premises,  without  rendering  his  policy  void. 

531.  Another    Condition    often  inserted    in  policies,  is  that   the 
insured  must  notify  the  company  in  case  he  procure  additional  insur- 
ance on  the  property.     The  object  of  this  is  to  prevent  the  over 
insuring  of   the  property,  and  thus  put  a  temptation  in  the  way 
of  the  insured  for  its  destruction.     Sometimes  a  provision  is  inserted 
in  the  first  policy  as  follows:  "$ additional  insurance  permit- 
ted." 

An  interesting  and  important  question  arises  as  to  whether  the 


PIBB    INSURANCE.  199 

insured  has  any  remedy  on  either  policy  when  he  procures  two  poli- 
cies, each  containing  the  clause  against  further  insurance,  and 
neither  company  has  knowledge  of  the  other  policy.  It  was  decided 
in  Massachusetts  that  the  second  policy  being  void,  his  right  on  the 
first  was  perfect. 

532.  The  Risk. — The  risk  is  the  danger  from  loss  by  the  particular 
damage  insured  against.  Sometimes  policies  against  loss  by  fire  also 
contain  a  provision  including  loss  by  lightning  as  well  as  by  fire.  The 
actual  loss  to  the  insured  is  the  criterion  or  true  measure  of  damage. 
By  this  is  meant  the  actual  value  of  the  property  at  the  time  of  loss. 
The  loss  under  the  peculiar  circumstances  of  the  case  may  occasion 
the  insured  damage  and  inconvenience  far  beyond  its  actual  value, 
still  the  actual  value  remains  the  true  measure.  Without  a  provi- 
sion in  the  policy  to  the  contrary,  loss  by  lightning  is  not  covered, 
unless  ignition  actually  takes  place.  It  includes  losses  resulting 
from  water  thrown  on  to  put  out  or  control  the  fire.  The  negligence 
of  the  owner  cannot  be  used  as  a  defense  against  his  right  of  recovery, 
unless  there  be  also  fraud. 


CHAPTER  XLIV. 
FIRE  INSURANCE— CONTINUED. 

533.  Abandonment  of  Fire  Insurance. — There  is  no  such  thing  in 
fire  insurance  as  an  abandonment  of  the  salvage  to  the  company,  in 
case  of  a  partial  loss,  and  then  claiming  the  whole  insurance.     This 
right  exists  only  in  marine  insurance. 

534.  Amount  Insured. — The  amount  stated  in  the  policy  is  not  the 
amount  the  company  agrees  to  pay  in  case  of  loss,  but  the  maximum 
amount  for  which    they  are    willing  to  become  liable.      The  loss, 
though  total,  may  be  but  a  small  proportion  of  the  amount  stated 
in  the  policy.     The  amount  stated  in  the  policy  is,  however,  the 
basis  for  the  computation  of  the  premium,  which  is  a  certain  per 
cent  of  it. 

A  insures  his  building,  valued  at  $5,000,  for  $3,000.  A  partial  loss  occurs, 
amounting  to  $2, 000.  The  loss  is  said  to  be  fully  covered,  and  he  will  get  the 
full  $2,000.  If  the  loss  had  been  $4,000  he  would  only  get  $3,000.  So  also  if 
it  had  been  total  he  would  only  receive  $3,000. 


200  PIKE    INSUBANCE. 

When  a  partial  loss  occurs,  and  the  company  pays  it,  it  is  then 
only  liable  for  the  remainder  of  its  policy.  Thus,  in  the  above  case, 
if  the  loss  had  been  $1,000,  the  company  would  then  only  be  liable 
for  $2,000  additional.  If  the  insured  wishes  the  full  $3,000  of  insur- 
ance, he  should  pay  the  additional  premium. 

535.  Insurance  in  Several  Companies.  —  Insurance  companies  as  a 
rule  prefer  many  and  small  risks  to  few  and  large  ones.  Then,  in 
case  of  loss,  their  loss  is  not  so  much  as  to  affect  them,  or  to  cause 
uneasiness  on  the  part  of  those  who  hold  their  policies.  For  this 
reason  one  who  has  a  large  property  which  he  wishes  to  insure,  must 
do  so  in  several  companies.  In  this  case  the  companies  will  demand 
that  the  written  portion  of  the  different  policies  shall  all  be  alike. 
This  is  to  make  a  settlement  in  case  of  loss  an  easy  matter.  They 

V  •/ 

thus  each  insure  the  identical  property,  and  they  stand  as  co-sureties 
for  the  loss,  each  being  liable  up  to  the  amount  mentioned  in  its 
policy.  If  the  loss  be  total  each  is  liable  for  the  full  amount  of  its 
policy,  but  if  the  loss  be  partial  each  pays  that  proportion  of  the  loss 
which  the  amount  of  its  policy  bears  to  the  whole  amount  of  insurance. 


A  has  a  property  which  he  insures  in  the  following  companies: 
$2,000  ;  Hartford,  $3,000;  Girard,  $4,000,  and  Queen,  $3,000.  There  is  a  loss 
of  $1,800;  this  being  15  per  cent  of  the  total  insurance,  each  company  must 
pay  15  per  cent  of  the  amount  of  its  policy,  which  will  just  make  the  loss 
good. 

A  would  then  have  to  make  collection  from  four  companies. 
Instead  of  this  he  can  collect  the  whole  amount  from  any  one  of 
them,  and  it  can  in  turn  compel  the  others  to  contribute  their  shares. 
This  is  no  more  than  the  right  of  contribution  mentioned  in  sec.  258, 
which  exists  among  all  joint  debtors.  To  prevent  this  throwing  of 
the  burden  of  collection  entirely  upon  the  companies,  many  have 
inserted  a  provision  in  their  policies  that  only  their*  pro  rata  can  be 
collected  from  them. 

536.  Adjustment  of  Loss.  —  The  policy  usually  prescribes  what  pro- 
ceedings must  take  place  in  the  event  of  loss.  It  usually  specifies 
that  notice  must  be  immediately  communicated  to  the  company,  stat- 
ing the  cause  and  extent  of  the  loss,  the  same  to  be  verified  under 
oath.  These  provisions  have  been  held  as  proper,  and  imposing  no 
unnecessary  burden  on  the  insured. 

In  large  cities  there  are  parties  whose  business  it  is  to  let  their 
services  to  those  who  have  suffered  a  loss  which  is  covered  by  insur- 
ance. Being  trained  "adjusters"  they  claim  to  be  able  to  make  a 


FIRE   INSURANCE.  201 

better  adjustment  iii  case  of  partial  loss  than  the  insured,  who  is 
unfamiliar  with  such  matters.  They  are  the  agents  of  the  insured. 
When  the  amount  of  loss  is  not  in  dispute  their  services  are  of  course 
not  required. 

In  case  of  a  total  loss  the  insured  collects  only  the  value  of  the 
property  irrespective  of  the  amount  of  the  policy,  but  some  States1 
have  statutes  compelling  full  payment  of  the  amount  of  the  policy. 

537.  Assignment  of  Policy. — The  contract  of  insurance  is  a  per- 
sonal one,  and  cannot  pass  to  another  without  the  consent  of  the 
insurer.     After  a  loss  occurs  there  is  a  vested  right  in  the  insured 
to  the  indemnity,  which  right  is  assignable  without  the  consent  of 
the  insurers.     The  policies  very  commonly  provide  that  an  assign- 
ment of  either  the  property  or  policy  will  avoid  it.     It  has  been 
previously  observed  that  the  insurable  interest  must  exist  through- 
out the  life  of  the  policy.     (See  sec.  525.)     When  one  transfers  the 
property  he  is  not  damaged  by  its  loss,  hence  the  insurer  is  not  liable. 

When  one  purchases  property  on  which  there  is  insurance,  the 
policy  should  be  immediately  assigned,  and  the  consent  of  the  company 
obtained,  or  new  insurance  should  be  procured  if  it  is  expected  to 
keep  the  property  insured.  When  property  is  sold  on  which  there 
is  insurance,  there  is  no  implied  contract  that  the  policy  shall  be 
assigned  as  a  part  of  the  consideration.  The  seller  may  cancel  the 
policy  and  take  its  surrender  value. 

A  has  a  house  on  which  there  is  a  policy  for  $5,000,  having  two  years  yet 
to  run.  He  sells  the  house  to  B,  who  pays  the  purchase  price  and  takes  pos- 
session. Nothing  is  said  about  the  insurance,  and  in  ten  days  after  the  trans- 
fer the  house  burns.  The  company  is  not  liable  to  either. 

Death  is  not  such  an  alienation  of  the  property  as  to  render  the 
policy  void;  neither  is  a  mortgage  of  the  premises  a  sale  of  the 
property  in  this  sense,  but  the  insurance  companies  are  careful  to 
provide  against  cases  of  the  kind. 

538.  Surrender  of  Policies. — The  ordinary  policy  provides  that  it 
may  be  canceled  at  the  option  of  either  party.     When  canceled  by  the 
company  they  retain  only  so  much  of  the  premium  as  has  been  earned, 
but  if  canceled  by  the  insured,  then  a  larger  per  cent  of  the  premium 
is  retained,  and  the  remainder  returned.       This  is  to  prevent  one 
who  wishes  a  short  term  policy  from  taking  a  long  term  at  the 
cheaper  rate  and  then  canceling  the  policy  at  the  end  of  the  short 
term. 

1  OMo,  Massachusetts,  Nebraska,  Missouri.    See  N.  E.  Rep.  962. 


202  LIFE    INSURANCE. 

539.  Representations. — Often  there  is  a  written  application  made 
for  insurance.     A  statement  made  either  orally  or  in  this  application, 
if  not  a  part  of  the  policy,  is  called  a  representation.     If  these  repre- 
sentations are  material  to  the  risk,  and  are  false  and  fraudulent,  the 
policy  will  be  void.     A  concealment   is  the  converse  of  a  representa- 
tion, but  if  the  fact  is  material  to  the  risk  it  should  be  communicated 
to  the  insurer. 

540.  Warranties. — A  warranty  differs  from  a  representation  in  that 
the  former  is  made  a  part  of  the  contract.     It  operates  as  a  condition 
precedent,  and  if  broken  there  is  no  contract. 

541.  Insurance  by  a  Mortgagee. — It  has  been  held  in  a  number 
of  cases  in  Massachusetts,  that  when  a  mortgagee  takes  out  a  policy 
of  insurance  in  his  own  name,  paying  the  premium  himself,  and  a 
loss  occurs  before  his  debt  is  paid,  he  can  recover  for  the  total  loss 
and  still  have  a  right  to  recover  his  whole  debt  from  the  mortgagor. 
If  the  debt  has  been  paid,  he  of  course  sustains  no  loss,  and  the  com- 
pany is  not  liable. 

The  case  would  also  be  different  if  the  policy  be  taken  by  the  mort- 
gagor for  the  benefit  of  the  mortgagee,  as  his  interest  may  appear. 


CHAPTER  XLV. 
LIFE  INSURANCE. 

542.  Importance. — Life  insurance  has  become  very  popular  in  this 
country.     It  is  said  that  a  certain  prominent  business  man  carries 
nearly  a  million  dollars  of  insurance  on  his  life.     Not  only  is  it  pop- 
ular among  the  rich,  but  among  other  classes  as  well.    It  is  taken  not 
alone  for  the  protection  of  those  dependent  on  the  insured,  but  as 
an  investment  as  well. 

543.  Definition. — Life  insurance  is  a  contract  whereby,  for  a  con- 
sideration, one  party  agrees  to  pay  a  certain  sum  of  money  to  another 
when  a  certain  person  dies  or  reaches  a  certain  age. 

There  are  three  parties  to  the  contract:    The  insurer ',  the  one 
whose  life  is  insured,  often  called  the  life-insured,  and  the  person  to 


LIFE    INSURANCE.  203 

whom  the  money  is  to  be  paid,  called  the  beneficiary.  Sometimes  a 
person  takes  out  insurance  on  his  own  life,  and  has  it  payable  to  him- 
self or  to  his  "estate."  In  the  latter  case  it  is  payable  to  his  legal 
representatives.  In  most  states  the  creditors  of  the  insured  have  no 
claim  upon  the  insurance  that  is  payable  to  any  one  except  to  the 
estate  of  the  insured. 

544.  Insurable  Interest. — There  must  be  an  insurable  interest  in 
the  life  insured  to  effect  a  valid  insurance.     One  of  course  has  such 
an  interest  in  his  own  life,  and  a  creditor  has  such  an  interest  in  the 
life  of  his  debtor  as  to  enable  him  to  insure  it  upon  his  own  account, 
but  the  interest  does  not  extend  beyond  the  amount  of  the  debt.     A 
partner  may  insure  the  life  of  a  co-partner.     Every  interest  one  may 
have  in  the  life  of  another  is  not  insurable,  it  must  be  a  direct 
pecuniary  interest.     A  child,  if  dependent  on  a  parent  for  support 
and  education,  has  such  an  interest,  and  a  parent,  if  dependent  on  a 
child  for  support,  is  entitled  to  insure  it.     This  insurable  interest 
differs  from  that  in  fire  insurance,  in  that  it  is  sufficient  if  this 
interest  exists  at  the  inception  of  the  policy,  while  in  fire  insurance, 
as  we  have  observed,  it  must  continue  throughout  the  life  of  the 
policy. 

If  the  life  of  a  debtor  is  insured  by  his  creditor,  and  the  debtor 
dies,  the  question  arises  whether,  after  the  receipt  of  the  insurance, 
the  creditor  can  still  claim  the  amount  of  his  debt.  It  is  a  well  set- 
tled rule  that  he  can.  If  the  policy  had  been  taken  out  by  the 
debtor,  and  made  payable  to  the  creditor,  as  collateral,  the  rule  would 
of  course  be  different. 

545.  The  Beneficiary. — When  one  takes  a  policy  on  his  own  life, 
and  makes  it  payable  to  another,  that  one,  though  it  may  be  unknown 
to  him,  acquires  such  an  interest  in  the  policy  that  it  cannot  be  con- 
trolled or  changed  without  his  consent. 

546.  Application. — A  formal,  written  application  is  usually  made 
for  a  policy.     This  application,  among  other  things,  gives  the  name, 
age  and  residence  of  the  life-insured.     The  company  has  an  exam- 
ining physician,  who  makes  a  medical  examination  of  the  person. 
Not  only  is  a  personal  examination  made,  but  answers  must  be  made 
to  a  long  list  of  questions  affecting  directly  or  indirectly  the  risk. 
These  answers  are  taken  in  writing,  and  on  them,  as  well  as  on  the 
physician's  examination,  the  company  bases  its  acceptance  of  the  risk. 


204  LIFE    INSURANCE. 

These  questions  relate  to  the  habits  of  the  party  to  be  insured,  also  to 
the  kinds  of  disease  with  which  the  party  has  already  been  afflicted, 
and  to  the  longevity  of  his  ancestors  and  near  relatives.  The  answers 
should  be  made  in  perfect  good  faith,  for  they  become  warranties, 
and  on  their  correctness  depends  the  validity  of  the  policy.  They 
are  usually  incorporated  in  the  policy  and  become  a  part  of  it. 

547.  The  Policy. — As  in  fire  insurance,  the  policy  is  the  contract, 
and  reference  must  always  be  made  to  it  for  its  provisions.     The 
forms  and  provisions  of  different  companies  vary  somewhat.     These 
policies  quite  frequently  contain  a  provision  that  the  party  insured 
must  not  remove  to  or  travel  in  certain  regions  where  the  death  rate 
is  high,  or  engage  in  certain  extra  hazardous  undertakings,  under 
penalty  of  forfeiture  of  insurance.     The  policy  also   contains   the 
amount  of  premium  paid  or  to  be  paid,  also  the  amount  of  insurance, 
to  whom  payable,  and  the  name  of  the  party  insured. 

548.  Assignment. — Policies  usually  contain  provisions  in  reference 
to  their  assignment,  and  when  they  do  the  provisions  are  binding. 
It  is  no  uncommon  thing  for  policies  to  be  assigned,  to  give  security 
to  a  creditor.     Notice  and  assent  are  usually  required  to  give  effect 
to  an  assignment.     A  delivery  for  the  purpose  of  assignment  has 
been  held  good  as  such,  without  any  writing.     But  there  must  always 
be  a  delivery.     The  better  method  is  to  endorse  the  policy  and  then 
secure  the  assent  of  the  company. 

549.  The  Premium. — This  is  the  consideration  paid,  or  to  be  paid, 
for  the  insurance.     It  may  be  a  gross  sum,  or  it  may  be  so  much 
annually,    semi-annually    or   quarterly.     In  mutual    companies  the 
premium  depends  upon  the  losses,  an  assessment  being  made  on  the 
members  in  proportion  to  their  insurance.     The  rate  of  premium 
depends  upon  the  age  of  the  person  insured.     Great  care  should  be 
used  to  pay  the  premium  promptly  when  due,  for  many  policies  are 
avoided  by  negligence  in  this  regard. 

550.  Kinds  of  Companies. — There  are,  as  in  fire  insurance,  a  num- 
ber of  different  kinds  of  companies.     The  business  is  almost,  if  not 
quite,  universally    done   by    corporations.      Fraternal  organizations 
often  include  an  insurance  feature.     These  organizations  are  usually 
mutual,  and  have  no  capital  stock  or  security  to  the  policy  holders 
beyond  the  moral  certainty  that  the  members  will  pay  their  assess- 


LIFE    INSURANCE.  205 

ments.     In  a  mutual  company  a  policy  holder  may  withdraw  at  any 
time  by  failing  to  pay  his  assessment. 

551.  Flans  of  Insurance. — There  are  innumerable  plans  for  insur- 
ance, plans  that  differ  in  the  details,  but  it  is  our  purpose  to  mention 
only  some  of  the  most  common.     In  the  first  place  a  policy  may  be 
participating  or  non-participating.      In    a  participating   policy  the 
holder  shares  in  the  profits  of  the  company  derived  from  certain 
sources.     A  prominent  company,  in  a  recent  report,  states   these 
sources  in  its  case  as  follows:     "The  dividend  surplus  arises  first, 
from  the  difference  between  four  per  cent  interest  on  our  invested 
assets   and   the   higher  rate    received;   second,  from  the   difference 
between  the  death  losses  sustained  during  the  year  and  the  expected 
losses  shown  by  the  tables;  third,  by  the  difference  between  the  mar- 
gin  which  is  added  to  the  net  premium  to  meet  the  expenses  of 
conducting  the  business  and  the  actual  expenses  incurred."     This 
profit   may,  at  the  option  of  the  holder,   be  taken  to  reduce  the 
annual  premium,  or  it  may  be  retained  by  the  company  as  premium  for 
the  purchase  of  additional  insurance,  or  if  the  policy  be  paid  up  it 
may  be  received  in  cash  annually.     A  non-participating  policy  has 
none  of  these  features. 

552.  Flans  Continued. — An  ordinary  life  policy  is  one  in  which 
the  premium  is  paid  annually,  or  otherwise,  during  life,  and  the 
insurance  is  payable  at  death.     There  are  also  policies  wherein  the 
premium  is  to  be  paid  for  a  certain  number  of  years  only,  and  the 
insurance  is  payable  at  death.     If  the  premium  be  paid  for  the  num- 
ber of  years  specified  the  holder  is  then  said  to  have  a  "paid  up 
policy."     There  will  be  nothing  more  to  pay  on  it,  and  if  it  be  a 
participating  policy  the  holder  may  receive  annually  a  cash  dividend 
on  it.     This  is  one  of  the  policies  that  have  a  commercial  value. 

553.  Endowment. — When    investment   is  a  prominent  feature  of 
the  plan,  an  endowment  policy  is  usually  taken.     By  this  plan  the 
premium  is  to  be  paid  annually  for  a  certain  number  of  years,  and 
the  insurance  is  to  be  paid  at  the  end  of  a  certain  number  of  years,  or 
at  prior  death.     By  this  plan  the  party  insured  has  hopes  of  receiv- 
ing the  insurance  himself.     The  plan  is  sometimes  adopted  when  it 
is  expected  that  a  fund  will  be  required  at  a  certain  time  for  a  cer- 
tain purpose,  such  as  the  education  of  a  child. 


LIFE    INSURANCE. 


554.  Non-Forfeitable  Policy. — Most  limited  premium  policies  are 
by  their  terms  non-forfeitable  after  the  payment  of  a  certain  number 
of  premiums.     That  is,  if  a  certain  number  of  premiums  have  been 
paid,  and  the  holder  then  fails  to  pay  more,  he  may  have  a  paid  up 
policy  for  the  amount  for  which  he  has  paid. 

555.  Surrender  Value. — Most   companies  give  the  option  to  the 
holder,  at  maturity  of  policy,  of  taking  either  a  paid  up  policy  or 
a  gross  sum  in  cash.     Some  also  agree  to  purchase  for  cash  the 
policy  at  its  then  valuation,  at  any  time  during  its  life.     This  is 
called  its  surrender  value.     This  value  will  depend  upon  the  number 
and  amount  of  premiums  paid. 

Table  of  Rates  of  Premium  on  Policy  of  $1,000. 


LIFE  POLICIES. 

ENDOWMENT  POLICIES. 

—i  A 

~o3 

-o5 

d" 

a 

a 

d 

d 

3  1 

3d 

3  d 

3  d 

S-i  ® 

-  d 

^  QJ 

& 

& 

£3  ® 

a  <D 

o>  1 

"2  i 

5j  I 

£  1 

•2  i 

QD 

•3s 

c3 

<>» 

i| 

gi 

gi 

Si 

51 

£,§ 

£ 

iC  ™ 

O  (V 

*"  d 

**  d 

cS  a 

0 

w 

" 

w 

H 

H 

w 

25 

$20  50 

$43  50 

$33  10 

$28  10 

$105  90 

$67  40 

$48  70 

§38  00 

$31  40 

26 

21  00 

44  30 

33  80 

28  60 

106  00 

67  50 

48  90 

38  20 

31  60 

27 

21  50 

45  20 

34  40 

29  20 

106  10 

67  60 

49  00 

38  40 

31  80 

28 

22  10 

46  10 

35  10 

29  80 

106  30 

67  80 

49  20 

38  60 

32  00 

29 

22  70 

47  00 

35  90 

30  50 

106  40 

68  00 

49  40 

38  80 

32  30 

30 

23  30 

48  00 

36  60 

31  10 

106  60 

68  20 

49  60 

39  10 

32  60 

31 

24  00 

49  10 

37  40 

31  80 

106  80 

68  30 

49  80 

39  30 

32  90 

32 

24  70 

50  10 

38  30 

32  60 

107  00 

68  60 

50  10 

39  60 

33  20 

33 

25  50 

51  20 

39  10 

33  30 

107  20 

68  80 

50  30 

39  90 

33  60 

34 

26  30 

52  40 

40  00 

34  10 

107  40 

69  00 

50  60 

40  30 

34  00 

35 

27  10 

53  60 

41  00 

35  00 

107  60 

69  30 

50  90 

40  60 

34  50 

36 

28  00 

54  80 

42  00 

35  80 

107  80 

69  60 

51  30 

41  10 

35  00 

37 

29  00 

56  20 

43  00 

36  80 

108  10 

69  90 

51  70 

41  50 

35  60 

38 

30  00 

57  50 

44  10 

37  70 

108  40 

70  20 

52  10 

42  00 

36  20 

39 

31  10 

59  00 

45  30 

38  80 

108  70 

70  60 

52  50 

42  60 

36  80 

40 

32  20 

60  40 

46  50 

39  80 

109  10 

71  00 

53  00 

43  20 

37  60 

41 

33  40 

62  00 

47  70 

41  00 

109  40 

71  50 

53  60 

43  90 

38  40 

42 

34  70 

63  60 

49  00 

42  20 

109  80 

72  00 

54  20 

44  60 

39  30 

43 

36  10 

65  30 

50  40 

43  50 

110  30 

72  50 

54  80 

45  40 

40  30 

44 

37  50 

67  10 

51  90 

44  80 

110  80 

73  10 

55  60 

46  30 

41  30 

45 

39  10 

69  00 

53  40 

46  20 

111  30 

73  80 

56  40 

47  30 

42  50 

46 

40  70 

70  90 

55  10 

47  80 

112  00 

74  60 

57  30 

48  40 

43  80 

47 

42  50 

72  90 

56  80 

49  40 

112  60 

75  40 

58  30 

49  60 

45  20 

48 

44  40 

75  10 

58  60 

51  10 

113  40 

76  30 

59  40 

51  00 

46  80 

49 

46  40 

77  30 

60  50 

52  90 

114  20 

77  30 

60  70 

52  40 

48  50 

50 

48  50 

79  60 

62  50 

54  80 

115  10 

78  40 

62  00 

54  00 

50  80 

The  above  are  the  published  rates  of  a  prominent  company. 


CASUALTY   INSUBANCE.  207 

556.  Manner  of  Death. — Most  policies  include  a  provision  that 
death  caused  by  suicide  or  duel  shall  make  the  policy  void.  The 
courts  are  much  inclined  to  nullify  the  provision  in  reference  to 
suicide,  and  hold  the  company  liable.  Death  by  the  hands  of  justice 
discharges  the  insurer. 


CHAPTER    XLVI. 
CASUALTY  INSURANCE. 

557.  Introduction. — The  liability  to  loss  through  unforseen  casual- 
ties is  incidental  to  every  business  undertaking.     The  careful  business 
man  takes  it  into  consideration  in  estimating  the  probable  cost  of 
every  venture.     The  results  may  show  that  he  either  over  or  under 
estimated  its  effect.     It  is  not  strange,  then,  that  companies  should 
be  organized  for    the    purpose  of  guaranteeing  indemnity   against 
almost  all  kinds  of  accidents.     By  this  means  the  business  man  is 
enabled  to  foretell  exactly  the  cost  or  expense  of  this  element.     It  is 
but  fair  to  say  that  this  branch  of  insurance  is  of  comparatively 
recent  origin,  and  hence  the  law  pertaining  to  it  cannot  be  said  to  be 
fully  developed.     In  general  there  is  an  evident  intention  to  follow 
the  rules  of  law  already  formed  in  the  older  branches  of  insurance 
wherever  they  are  applicable. 

558.  Accident  Insurance. — This  is  a  personal  insurance  against  all 
accidents  happening  to  the  insured.     As  in  life  insurance  the  busi- 
ness is  conducted  on  two  plans,  mutual  and  level  premium.     When  a 
definite  premium  is  charged,  it  is  based  on  the  hazards  of  the  busi- 
ness in  which  the  insured  is  engaged,  and  not  on  the  age.     The 
different  kinds  of  business  are  classified  according  to  the  risk  which 
experience  shows  attends  them.     The  premium  also  depends  of  course 
on  the  amount  of  indemnity  assured.     The  amount  of  the  insurance 
is  always  stated  in  the  policy,  which  usually  provides  that  a  certain 
amount  will  be  paid  in  case  of  death  by  accident;  a  less  amount  in 
case  of  loss  of  limbs,  (hands  or  feet),  and  a  still  smaller  amount  for 
loss  of  one  limb,  (hand  or  foot) .     It  also  provides  for  a  certain  weekly 
indemnity  while  disabled. 


208  CASUALTY   INSURANCE. 

559.  Employer's  Liability. — Every  employer  knows  that  a  suit  for 
damages  not  infrequently  follows  an  accident  happening  to  any  of  his 
workmen.     Even  if  he  is  not  legally  liable,  the  suit  is  sure  to  cause 
him  more  or  less  expense,  anxiety  and  worry.     It  is  against  this 
liability  that  an  employer  is  now  able  to  insure  himself.     It  must  be 
understood  that  neither  the  employer  nor  employee  profit  directly  by 
the  insurance.     The  agreement  is  to  pay  only  in  case  the  insured  is 
liable  to  pay. 

A  is  a  builder  and  contractor,  and  employs  a  large  number  of  men 
annually.  The  business  is  more  or  less  hazardous,  and  not  a  year 
passes  but  several  workmen  are  injured  in  the  course  of  their  employ- 
ment. He  takes  out  an  Employer's  Liability  policy  to  protect  him- 
self against  any  liability  by  reason  of  his  negligence  in  not  providing 
proper  machinery,  and  against  the  negligence  of  any  of  his  workmen, 
not  engaged  in  the  same  line  of  business  as  the  injured.  (See  sees. 
431  and  432.) 

The  premium  is  based  on  the  amount  of  his  annual  pay  roll,  also 
on  the  gross  amount  for  which  he  is  insured,  and  the  hazards  of  the 
business  in  which  he  is  engaged.  The  policy  usually  provides  that 
the  company  will  not  be  responsible  for  any  one  accident  beyond  a 
certain  amount,  and  beyond  a  certain  larger  amount  for  the  whole 
period  of  the  policy. 

When  an  accident  occurs  the  insured  notifies  the  company,  who 
immediately  investigate  all  the  circumstances  of  the  case,  and  if  they 
deem  the  employer  liable,  the  claim  is  settled.  If  suit  is  brought 
against  him  they  take  full  charge  thereof,  by  furnishing  counsel  and 
collecting  evidence.  To  protect  itself  the  company  has  the  right  to 
inspect  the  machinery  of  the  insured  at  all  times,  and  may  cancel  the 
risk  at  any  time  by  refunding  the  amount  of  unearned  premium. 
The  policy  usually  contains  a  provision  that  the  company  shall  have 
the  right  of  subrogation. 

560.  Guaranty  of   Title. — Companies  are  now  organized  for  the 
purpose  of  guaranteeing  the  validity  of  one's  title  to  real  estate. 
The  company  has  in  its  regular  employment  trained  attorneys,  who 
are  particularly  skilled  in  real  estate  law.     "When  one  sells  realty  he 
will  usually  be  required  to  give  an  abstract  of  title,  showing  a  clear 
and  indefeasible  title  in  him.     Instead  of  this,  he  may  make  applica- 
tion for  a  Guaranty  of  Title  policy  to  run  in  favor  of  the  purchaser. 
The  company,  by  its  attorneys,  thoroughly  investigates  the  records, 


CASUALTY   INSURANCE.  209 

and  if  the  report  is  satisfactory  a  policy  is  issued.  The  premium 
depends  upon  the  amount  of  insurance,  and  also  on  the  defects  in  the 
title,  if  any. 

In  case  the  title  is  attacked,  the  company  supplies  counsel  and 
takes  charge  of  the  defense,  or  settles  the  claim,  as  it  may  deem  best. 
Such  A  policy  cannot  be  assigned  when  the  property  is  sold,  so  as  to 
carry  its  benefits  to  the  purchaser,  for  the  transfer  of  property  intro- 
duces a  new  element  into  the  title,  an  element  not  considered  at  the 
inception  of  the  policy. 

561.  Plate  Glass. — It  is  a  well  known  fact  that  large  pieces  of 
plate  glass  are  expensive,  and  that  they  are  usually  so  placed  as  to  be 
exposed  to  constant  risk  of  breakage.     It  is  now  the  general  custom 
to  insure  plate  glass  against  this  risk,  and  especially  is  this  true  when 
it  is  placed  in  a  business  house  abutting  the  street,  and  on  the 
ground  floor.     Large  expensive  mirrors  are  also  frequently  insured. 
The  premium  charged  is  a  certain  per  cent  of  the  manufacturer's  list 
price  on  the  glass.     In  case  of  loss  the  company  usually  replaces  the 
glass  instead  of  paying  the  cash,  for  it  can  do  so  much  cheaper  than 
can  the  insured. 

562.  Steam  Boilers. — Steam  boiler  insurance  is  against  all  imme- 
diate loss  or  damage  caused  by  the  explosion,  collapse  or  rupture  of 
the  boiler.     It  covers  damages  to  the  boiler  itself,  and  also  to  other 
property  of  the  insured.     It  saves  the  insurer  harmless  from  any 
liability  from  damages  to  the  property  or  person  of  other  persons,  if 
such  liability  was  the  result  of  the  explosion.     The  insurance  against 
the  injury  to  the  person  is  limited  to  a  certain  gross  amount,  and 
also  to  a  certain  amount  per  week  in  case  the  injury  is  not  fatal.     It 
does  not  cover  a  loss  by  fire  even  though  it  be  caused  by  the  explosion. 
The  insured,  in  case  of  an  accident  covered  by  the  policy,  agrees  to 
give  immediate  notice  to  the  company,  in  writing.     The  company 
may  investigate  the  accident,  and  either  make  settlement  for  the  loss, 
or  defend  the  case  by  its  attorneys  in  case  an  action  is  brought,  as  it 
may  elect.     As  in  all  "policies,  the  company  will  not  in  any  case  be 
liable  beyond  a  certain  amount. 

The  boilers  are  frequently  tested  by  the  inspectors  of  the  company, 
and  if  defects  are  found,  which  are  not  immediately  corrected,  the 
policy  may  be  suspended.  The  amount  of  premium  is  largely  a 
matter  of  special  contract,  depending  somewhat  upon  the  cost  of 
inspection,  the  number  of  boilers  together,  their  condition,  etc. 


210  CASUALTY   INSURANCE. 

563.  Elevator. — Policies  are    now  written  granting  insurance  to 
the  owner  or  lessee  of  an  elevator.     It  usually  only  covers  loss  for 
accidents  to  the  car  itself  and  liability  for  injury  to  the  persons  of 
others. 

564.  Rents. — The  owner  of  a  building  which  is  leased,  may  be 
deprived  of  his  rents  because  of  some  accident  which  has  made  the 
building  uninhabitable.     A  fire  may  have  made  extensive  repairs,  if 
not  a  new  building,  necessary.     A  fire  policy  would  cover  the  cost  of 
the  repairs,  but  would  not  reimburse  him  for  the  loss  of  rents.     To 
cover  this  a  rent  policy  may  be  taken  out.     The  premiums  are  based 
on  the  rent  roll,  and  the  amount  of  the  policy. 

565.  Guaranty  of  Honesty. — Persons  who  are  about  to  accept  a 
position  of  trust,  are  often  required  to  give  bond  that  they  will  faith- 
fully perform  the  duties  assigned  to  them,  and  especially  that  they 
will  make  true  return  of  any  and  all  moneys  that  may  pass  through 
their  hands  while  in  such  employment.     Their  record  may  be  good, 
and  still  they  may  have  no  friends  able  and  willing  to  guaranty  their 
honesty.     Bonds  or  policies  of  this  kind  are  now  a  common  feature 
of  this  branch  of  insurance.     Administrators,  executors  and  guard- 
ians often   make  use  of  such  bonds  to  guaranty  to  the  court  the 
faithful  discharge  of  their  duties.     The  premium  charged  is  based  on 
the  amount  of  the  bond,  and  on  the  opportunities  there  may  be  for 
dishonesty. 

566.  Loss  By  Thefts. — One  of  the  latest  features  of  this  branch  of 
insurance  is  a  policy  securing  indemnity  against  burglars,  or  thieves 
of  all  kinds. 


BE  VIEW   QUESTIONS.  211 


REVIEW  QUESTIONS. 

1.  Name  the  parties  to  a  contract  for  fire  insurance.  2.  Describe  the  differ 
0 nt  plans  of  insurance.  3.  What  is  a  mutual  company?  4.  Which  is  the  most 
common  plan?  5.  Define  an  insurable  interest.  6.  Can  two  or  more  persona 
secure  insurance  on  the  same  piece  of  property?  7.  What  is  a  board  com- 
pany? 8.  Describe  how  the  rates  are  fixed.  9.  What  is  a  policy?  10.  What 
can  you  say  of  conditions  in  the  policy?  11.  What  is  meant  by  the  risk? 
12.  Is  loss  by  lightning  covered  by  the  ordinary  fire  policy?  13.  What  is 
meant  by  "abandonment"?  14.  Where  does  it  obtain?  15.  On  what  is  the 
premium  based?  16.  How  are  losses  usually  adjusted?  17.  In  case  several 
companies  have  policies  on  the  same  property,  and  there  is  a  loss,  how  do 
they  adjust  it?  18.  When  and  how  can  a  policy  be  assigned?  19.  What  is 
meant  by  surrendering  a  policy?  20.  What  is  a  representation,  and  what  is 
its  effect?  21.  What  is  a  warranty,  and  what  is  its  effect?  22.  Can  a  mort- 
gagee, who  has  insured  his  interest,  collect  the  insurance  in  case  of  loss,  and 
also  the  debt?  23.  For  what  purpose  is  life  insurance  taken?  24.  Define  life 
insurance.  25.  Name  the  parties.  26.  What  is  an  insurable  interest?  27. 
How  does  it  differ  from  an  insurable  interest  in  fire  insurance?  28.  Can  on« 
who  has  taken  a  policy  in  favor  of  another  change  it  without  the  consent  of 
that  other?  29.  What  does  an  application  for  life  insurance  usually  contain! 
30.  How  and  when  can  the  policy  be  assigned?  31.  On  what  is  the  premium 
based?  82.  How  may  the  premium  be  paid?  33.  Explain  the  methods  of  a 
mutual  company.  34.  What  other  kind  of  company  is  there?  35,  What  is  A 
participating  policy?  36.  What  are  the  sources  of  profit  that  is  divided 
among  the  policy  holders?  37.  What  is  an  endowment?  38  Are  policies 
usually  forfeitable?  39.  Define  surrender  value.  40.  Is  a  company  liable 
for  a  death  by  suicide?  41.  What  can  you  say  of  the  growth  of  casunity 
insurance?  42.  Explain  accident  insurance.  43.  On  what  is  the  premium 
based?  44.  Explain  employer's  liability  insurance.  45.  On  what  is  the 
premium  based?  46.  Explain  guaranty  of  title.  47.  On  what  is  the  premium 
based?  48.  Explain  plate  glass  insurance.  49.  Explain  steam  boiler  insur- 
ance. 50.  What  does  the  insurance  cover?  51.  What  does  elevator  insur- 
ance cover?  52.  What  does  rent  insurance  cover?  53.  Explain  guatfcdty  of 
honesty  insurance. 


212  KEAL   ESTATE. 


REAL  ESTATE. 


CHAPTER  XLVTI. 

567.  Definition. — Real  property  consists  of  such  things  as  are  per- 
manent, fixed  and  immovable.     It  includes  the  minerals  that  are 
beneath  the  surface  of  the  earth,  and  the  water  which  is  upon  its 
surface,  as  well  as  whatever  of  a  permanent  nature  is  attached  to  the 
earth,  such  as  buildings. 

568.  Source  of  our  Law. — When  we  were  a  dependency  of  Great 
Britain  we,  of  course,  adopted  her  system  of  real  estate  tenures,  so 
far  as  they  were  applicable  to  the  conditions  existing  here.     This 
formed  the  basis  of  our  real  estate  laws,  and  as  there  is  less  disposi- 
tion to  change  laws  in  reference  to  real  estate  than  in  any  other 
branch  of  the  law,  this  system  still  continues  in  the  main  the  law  of 
the  land.     For  this  reason,  in  cases  of  dispute,  the  old  English 
decisions  are  still  quoted  in  explanation  or  interpretation  of  our  laws. 

569.  The  Feudal  System. — In  order  to  understand  our  real  estate 
law,  it  must  be  constantly  borne  in  mind  that  it  was  not  the  result  of 
any  one  enactment  or  enactments,  but  was  the  growth  of  decisions  for 
centuries.     Much  of  it  originated  at  a  time  when  personal  property 
was  deemed  of  more  importance  than  real,  and  when  war  occupied 
no  small  portion  of  the  time  of  the  individual.     The  feudal  system  is 
said  to  have  originated  with  the  Vandals,  and  was  carried  with  them 
when  they  overran  Europe,  at  the  decline  of  the  Roman  Empire.     It 
was  implanted  in  their  colonies  as  a  political  measure,  for  it  was 
deemed  the  most  likely  means  of  preserving  their  new  acquisitions. 
To  this  end  large  districts  or  parcels  of  land  were  allotted  by  the 
conquering  general  to  the  superior  officers  of  the  army,  and  by  them 
dealt  out  again  in  smaller  parcels  to  the  inferior  officers  and  most 
deserving  soldiers.     These  allotments  were  called  feuds  or  fees,  which 
in  their  language  meant  a  conditional  stipend,  or  reward.     The  con- 
dition annexed  to  them  was  that  the  possessor  should  do  service  both 


REAL   ESTATE.  213 

at  home  and  in  the  wars  to  him  by  whom  they  were  given;  for  this 
purpose  he  took  the  oath  of  fealty.  It  can  be  thus  seen  that  each 
individual  held  his  property  only  so  long  as  he  remained  loyal.  This 
gave  to  these  conquerors  such  military  power  that  the  other  nations 
were  obliged  to  adopt  the  same  plan  in  self  defense,  and  it  finally 
became  the  established  rule  throughout  the  western  world.  The 
system  was  introduced  into  England  by  William  the  Conqueror,  who 
rewarded  his  followers  with  extensive  possessions. 

In  this  country  the  title  to  all  lands  is  deemed  to  have  been  origi- 
nally derived,  since  the  Revolution,  from  either  the  State  or  the 
United  States.  But  the  title  is  absolute  or  unconditional  except  as 
to  the  right  of  eminent  domain. 

570.  Estates. — An  estate  is  the  nature  and  extent  of  interest 
which  a  person  has  in  real  property.  There  are  many  different 
kinds  of  estates  in  reference  to  their  nature  as  well  as  to  their 
extent,  but  only  the  most  important  ones  will  be  here  considered: 


a.  Fee  Simple. 
1.  Inheritable.         1  ^    Fee 


la. 
1  b. 


I.  As  to  Length.  -(  (      i/f   •! Dower- 

2.  Non-Inheritable-  ]  °         6>|Curtesy. 
(  b.  For  Years. 

TT  m.  .  -,-,    .  (  1.  Remainders. 

II.  As  to  Time  of  Enjoyment,  -j       _ 

(  1.  In  Severalty. 
III.  As  to  Number  of  Owners.1  •<  2.  Joint  Tenancy. 

(  3.  Tenancy  in1  Common. 

571.  Fee  Simple. — This  is  the  largest  estate  possible  to  be  had  in 
property.  It  is  the  absolute  title,  subject,  as  we  have  said,  only  to 
the  right  of  eminent  domain.  It  is  defined  as  an  estate  of  inherit- 
ance, descendible  absolutely  and  generally,  the  meaning  of  this  being 
that  the  owner  holds  it  not  alone  for  his  own  life,  but  that  he  owns 
that  future  enjoyment  which  will  descend  to  his  heirs  according  to 
the  rules  of  descent.  This  is  the  estate  that  is  the  most  common  in 
this  country,  and  all  property  is  so  held  by  some  one. 

The  owner  in  fee  simple  may  use  the  property  as  he  may  see  fit, 
and  he  may  sell  it  or  dispose  of  it.  Being  an  estate  of  inheritance, 
it  will  descend  at  his  death  to  his  heirs,  unless  he  otherwise  disposes 
of  it  by  will. 

1  See  Section  21. 


214  EEAL   ESTATE. 

572.  Fee  Tail. — This  estate  was  once  very  common   in  England, 
and  was  one  of  the  causes,  as  we  shall  see,  of  raising  up  and  perpetu- 
ating the  aristocracy  and  landed  proprietors.     It  was  one  of  the  first 
features  of  the  English  real  estate  law  to  receive  the  condemnation 
of  the  courts  and  legislatures  of  this  country.     It  was  considered  to 
be  inimical  to  and  opposed  to  our  republican  institutions.     It  is  an 
estate  of  inheritance,  but  instead  of  being  "descendible  absolutely 
and  generally,"  it  is  descendible  to  some  particular  heirs,  exclusive 
of  others.     This  has  the  effect  of  tying  up  the  estate,  and  preventing 
its  alienation,  for  it  must  go  to  the  stipulated  heirs  at  any  event,  if 
there  are  such ;  and  if  not,  it  reverts  to  the  original  donor. 

A  grants  by  deed  a  certain  piece  of  realty  to  B,  and  to  the  heirs  of  his  body. 
This  is  a  fee  tail,  and  B  has  the  use  and  enjoyment  of  it  so  long  as  he  may 
live.  At  his  death  it  descends  to  his  lineal  descendants,  to  the  exclusion  of 
his  collateral  descendants.  If  there  be  no  lineal  descendants,  then  the  estate 
ends  and  reverts  to  A. 

This  is  the  estate  as  it  existed  by  common  law,  but  as  we  have  said, 
it  is  not  at  all  favored  in  this  country,  as  it  without  doubt  tends  to 
perpetuate  a  landed  aristocracy. 

We  have  estates  tail,  however,  in  a  limited  sense  in  most,  if  not  all 
of  the  states,  but  the  restraint  on  alienation  usually  extends  only  to 
those  who  are  in  being  at  the  time,  and  their  immediate  issue  or 
descendants,  after  which  the  estate  becomes  a  fee  simple. 

573.  Life  Estate. — A  life  estate  is  not  an  estate  of  inheritance.     It 
maybe  held  for  the  life  of  the  holder  (called  a  life  tenant),  or  for 
the  life  of  another.     A  life  tenant  has  the  right  to  the  full  enjoy- 
ment of  the  land,  and  all  its  profits,  during  his  estate.     While  he  has 
the  right  to  cut  all  necessary  wood  for  fuel  and  repairs  to  fences  and 
buildings,  yet  he  is  not  permitted  to  commit  waste,  which  is  the 
destruction  of  the  estate  with  respect  to  houses,  wood  or  soil,  to  the 
lasting  injury  of  the  inheritance.     This  may  be  either  actual  or  per- 
missive, as  where  the  buildings  are  permitted  to  go  to  decay.     In  the 
absence  of  agreement,  the  tenant  should  keep  the  premises  in  as 
good  repair  and  condition  as  he  found  them,  inevitable  accidents 
excepted.     He  is  entitled  to    emblements.     These  are  the  annual 
crops  growing  on  the  land  at  the  termination  of  the  estate.     The 
theory  is  that  the  tenant,  who  could  not  foresee  the  death  of  the 
person  on  whose  life  the  estate  depended,  planted  in  expectation  of 
reaping.     But  where  the  tenant  knows  when  the  estate  is  to  expire 
the  emblements  go  to  the  next  estate. 

There  are  two  life  estates  common  in  this  country,  viz:  Dower  and 
Curtesy. 


BEAL  ESTATE.  215 

574.  Dower. — This  is  the  life  estate  which  the  wife  has  in  the  one- 
third  of  all  estates  of  inheritance  of  which  her  husband  was  seized 
during  coverture,  to  take  effect  and  be  enjoyed  at  his  death.     The 
statutes  have  quite  generally  enlarged  this  by  giving  to  her  a  portion 
of  the  personal  property  as  well.     It  is  to  release  her  interest  in  this 
estate  that  a  wife  should  join  her  husband  in  a  conveyance  of  realty. 
The  right  exists  as  soon  as  the  property  is  owned  by  the  husband, 
but  it  is  said  to  be  inchoate,  and  does  not  become  active  estate  until 
the  husband's  death.     It  terminates  *at  her  death,  when  it  reverts 
to  the  original  estate,  and  descends  to  the  husband's  heirs.     The 
courts  have  always  been  watchful  of  this  estate,  and  do  not  permit  it 
to  be  barred  without  the  wife's  consent.     Sometimes  the  husband 
leaves  her  by  will  a  certain  estate,  or  a  certain  amount  of  personal 
property,  which  is  to  be  in  lieu  of  dower,  but  she  may  elect  to  take 
the  dower  or  her  estate  by  the  will,  a&  she  may  wish. 

575.  Estate   by  Curtesy. — This  is  the  converse  of  dower.     It  is 
the  life  estate  which  the  husband  has  in  his  wife's  estates  of  inherit- 
ance of  which  she  was  seized  during  coverture.     There  is  one  condi- 
tion to  the  vesting  or  this  estate,  it  is  that  there  shall  be  issue  born 
alive,  and  capable  of  inheriting  the  estate.     It  matters  not  that  the 
child  lived  but  a  moment,  it  is  sufficient  if  it  breathed.     Curtesy  is 
abolished  in  some  few  states,  and  in  some,  notably  Illinois,  the  hus- 
band has  by  statute  the  same  interest  in  his  wife's  estate  that  she 
has  in  his. 

576.  Estate  For  Years. — This  is  the  estate  quite  generally  desig- 
nated as  a  lease,  but  this  is  but  a  figure  of  speech,  substituting  the 
name  of  the  instrument  by  which  it  is  conveyed  for  the  estate  itself. 
An  estate  for  years,  no  matter  how  long  it  may  be,  is  considered  as 
personal  property,  and  has  none  of  the  dignity  attached  to  a  free- 
hold.    One  who  owns  an  estate  for  years  is  not  a  freeholder.     A 
freehold  estate  is  any  estate  of  inheritance,  or  a  life  estate.     A  free- 
holder even  in  this  country  is  granted  some  privileges  not  accorded 
others.     (See  chapter  48.) 

577.  Remainders. — This  is  another  division  of  estates  in  reference 
to  the  time  of  enjoyment. 

A  owning  a  fee  simple  in  land  wills  a  life  estate  to  his  son  B,  on  the  ter- 
mination of  which  the  remainder  of  the  estate  is  to  go  to  C.  C's  estate  is  an 
estate  of  remainder. 


216  EEAL  ESTATE. 

It  is  defined  as  an  estate  limited  to  take  effect  and  be  enjoyed  after 
tJie  termination  of  some  particular  estate.  B's  estate  in  the  above 
illustration  is  called  the  particular  estate. 

578.  Reversion. — A  reversion  is  the  residue  of  an  estate  remaining 
in  the  grantor,  or  his  heirs,  to  come  to  his  or  their  possession  after 
the  determination  of  some  particular  estate  granted  away. 

If  A  has  an  estate  in  fee  and  grants  B  an  estate  for  years,  or  a  life  estate, 
he  still  has  a  reversion  in  fee 

A  landlord's  estate  is  a  reversion. 

579.  How  Property  Held. — We  have  already  discussed,  (sec.  21), 
how  property  may  be  held  by  one  or  more  owners.     In  addition  to 
wha,t  is  there  said,  it  may  be  added  that  the  naked  title  to  realty 
may  not  be  held  by  the  owner  at  all,  but  by  a  third  person  called  a 
trustee.     In  such  case  all  the  trustee  holds  is  the  naked  title  and 
this  he  holds  for  the  benefit  of  the  real  owner,  called  the  beneficiary, 
to  whom  he  must  account  for  all  profits  and  proceeds.     (See  sec. 
603.) 


CHAPTER  XLVIII. 
REAL  ESTATE  CONVEYANCES. 

580.  Introduction. — Having  'described  the  various  estates  common 
in  our  country,  it  will  now  be  proper  for  us  to  consider  the  different 
instruments  of  conveyance  by  means  of  which  these  estates  are  trans- 
ferred.    As  the  estates  themselves  had  their  origin  in  the  feudal 
system  already  described  so  the  instruments  of  conveyance  were  also 
taken  from  this  same  military  age.     This  fact  must  be  constantly 
borne  in  mind  in  order  to  account  for  not  only  the  general  form  of 
these  instruments  but  for  the  phraseology  as  well. 

581.  Deeds. — Strictly  speaking  estates  are  at  common  law  trans- 
ferred only  by  deed  which  is  legally  an  instrument,  signed,  sealed  and 
delivered.     But  it  is  in  the  popular  sense  of  this  term  that  it  will  be 
used  here.     They  are  now  much  simpler  than  formerly,  owing  to 
statutory  regulations.     The  law  of  the  state  where  the  property  is 
situated  applies,  and  should  always    be  consulted  when  involved. 
The  following  forms  of  instruments  of  conveyance  are  in  common  use ; 


.SEAL  ESTATE   CONVEYANCES.  217 

1.  Warranty  Deed,  full  covenant. 

2.  Warranty  Deed. 

3.  Warranty  Deed,  with  covenant  against  grantor. 

4.  Quit  Claim  Deed. 

5.  Eelease  Deed. 

6.  Mortgage. 

7.  Trust  Deed. 

8.  Lease. 

582.  Requisites. — Unless  the  statute  has  provided  otherwise,  a 
deed  should  have  the  following  seven  requisites : 

1.  Parties. 

2.  Consideration. 

3.  Written  (or  printed)  document. 

4.  Legal  setting  forth. 

a.  Premises. 

6.  Granting  Clause. 

C.  Description. 

d.  Habendum  (to  have)  and  Tenendum  (to  hold)  clause. 

e.  Condition,  or  clause  of  contingency. 
/.  Warranties,  or  covenants. 

g.  Conclusion. 

5.  Signing  and  Sealing. 

6.  Acknowledgment. 

7.  Delivery. 

Of  the  first  three  requisites  it  will  be  unnecessary  to  speak,  for 
what  has  already  been  said  of  them  under  contracts,  applies  equally 
well  here.  The  one  making  the  conveyance  is  called  the  grantor,  and 
the  one  to  whom  it  is  made  the  grantee.  The  premises  include  the 
names  and  description  of  the  parties,  the  recital  of  the  consideration, 
and  any  other  agreement  peculiar  to  the  case. 

tEbiS  ffnfcCntUte,  Made  this  22nd  day  of  .August,  in  the  year  of  our 
Lord  One  Thousand  Nine  Hundred  One,  between  Charles  H.  Hathaway  and 
Laura  Hathaway,  his  wife,  of  the  City  of  Chicago,  in  the  County  of  Cook  and 
State  of  Illinois,  party  of  the  first  part,  and  Martin  F.  Deale,  of  the  Township 
of  Pella,  in  the  County  of  Ford,  and  State  of  Illinois,  party  of  the  second  part: 

Witnesseth,  That  for  and  in  consideration  of  the  sum  of  Two  Thousand 
Dollars  in  hand  paid  by  the  said  party  of  the  second  part,  the  receipt  whereof 
is  hereby  acknowledged,  and  the  said  party  of  the  second  part  forever  released 
and  discharged  therefromt  *  *  *  * 

It  is  not  necessary  that  the  actual  consideration  be  stated.  It  is 
sufficient  if  it  state  a  valid  consideration. 


218  REAL   ESTATE. 

Deeds  are  of  two  kinds,  deeds  poll,  by  which  is  meant  a  deed  of 
one  party  to  another,  and  indentures.  The  former  begins:  "Know 
all  men  by  these  presents,"  and  the  latter,  "This  indenture,"  etc. 
These  are  called  indentures  because  in  ancient  times  there  were  made 
as  many  copies,  on  one  piece  of  parchment,  as  there  were  parties, 
and  in  separating  them  these  were  cut  or  indented  like  the  teeth  of 
a  saw — hence  the  deed  came  to  be  called  an  indenture,  and  is  so 
called  to  this  day. 

583.  The  Granting  Clause  is  the  one  in  which  the  grantor  grants 
to  the  grantee.     The  language  used  varies  in  the  different  kinds  of 
instruments.     Thus,  in  a  warranty  deed  it  is   usually,    "bargain, 
grant,  sell  and  convey,"  or  any  two  or  more  of  the  terms;  in  a  quit 
claim  it  is  "bargain,  sell,  remise  and  quit  claim,"  and  in  a  lease  it 
is  "demise  and  lease."     This  clause  also  contains  the  words  that 
define  the  length  of  the  estate  granted,  or  as  they  are  called,  "words 
of  inheritance. "     These  are  "heirs  and  assigns."     At  common  law, 
unless  these  words  are  used,  showing  that  the  grant  is  to  the  grantee 
and  his  heirs  and  assigns,  that  is,  an  estate  of  inheritance,  only  a  life 
estate  will  pass,  leaving  a  reversion  still  in  the  grantor.     The  impor- 
tance of  these  words  cannot  be  overestimated. 

The  said  party  of  the  first  part  has  granted,  bargained,  sold  remised,  released, 
conveyed,  aliened  and  confirmed,  and  by  these  presents  does  grant,  bargain, 
sell,  remise,  release,  convey,  alien  and  confirm,  unto  the  said  party  of  the 
second  part,  and  to  his  heirs  and  assigns  forever,  all  the  following  described 
lot ,  piece  ,  or  parcel  of  land,  situated  in  the  City  of  Chicago,  County  of  Cook 
and  State  of  Illinois,  and  known  and  described  as  follows,  to-wit: 

584.  Description. — The  description  of  the  property  should  be  clear 
and  unmistakable.     To    avoid  error,    the    legal  description  should 
always  be  used.     The  system  of  rectangular  surveying  employed  in 
all  western  states,  makes  an   accurate  description  a   comparatively 
easy  matter.     If  other  forms  of  description  are  also  employed,  care 
should  be  used  to  see  that  they  describe  the  same  property. 

The  South  East  quarter  (S.  E.  X)  of  the  North  West  quarter  (N.  W.  ^4)  of 
Section  twenty-nine  (29) ,  Township  thirty-eight  North  (38  N, )  of  range  four- 
teen (R.  14)  West  of  the  third  principal  meridian. 

585.  To  Have  and  to  Hold. — The  fourth  clause  in  a  deed  begins 
with  these  words.     Its  purpose  was  the  same  as  we  have  described 
the  granting  clause  to  be,  and  the  granting  clause  being  used,  this 
clause  is  now  quite  unnecessary.     If  words  of  inheritance  be  omitted 


BEAL  ESTATE   CONVEYANCES.  219 

from  the  granting  clause,  they  may  be  inserted  in  this,  and  the 
defect  will  be  cured. 

Together  with  all  and  singular,  The  hereditaments  and  appurtenances 
thereunto  belonging,  or  in  anywise  appertaining,  and  the  reversion  and  rever- 
sions, remainder  and  remainders,  rents,  issues  and  profits  thereof;  and  all  the 
estate,  right,  title,  interest,  claim  or  demand  whatsoever,  of  the  said  party  of 
the  first  part,  either  in  law  or  equity,  of,  in  and  to  the  above  bargained  prem- 
ises, with  the  hereditaments  and  appurtenances:  To  Save  and  to  Hold 
the  said  premises  above  bargained  and  described,  with  the  appurtenances, 
unto  the  said  party  of  the  second  part,  his  heirs  and  assigns,  forever. 

586.  Condition. — This  is  a  clause  inserted  when  the  estate  granted 
is  to  be  defeated  on  the  happening  of  a  certain  event.     A  good 
example  of  it  is  in  case  of  a  mortgage,  providing  that  if  the  debt  be 
paid,  then  the  mortgage  to  be  null  and  void.     (See  sec.  596.) 

587.  Warranties. — By  this  the  grantor,  not  only  for  himself,  but 
for  his  heirs,  warrants  the  grantee  or  his  heirs,  secure  in  the  estate 
granted.     If  the  grantor  covenant  for  his  heirs,  they  are  bound  to 
perform  it,  provided  they  have  assets  by  descent,  but  not  otherwise. 
There  are  four  covenants  to  a  full  covenant  warranty  deed.     These 
may  be  as  follows : 

And  The  said  party  of  the  first  part,  for  their  heirs,  executors  and  admin- 
istrators, do  covenant,  grant,  bargain  and  agree,  to  and  with  the  said  party 
of  the  second  part,  his  heirs  and  assigns,  that  at  the  time  of  the  ensealing  and 
delivery  of  these  presents,  (1),  they  are  well  seized  of  the  premises  above  con- 
veyed, as  of  a  good,  sure,  perfect,  absolute  and  indefeasible  estate  of  inherit- 
ance in  law,  in  fee  simple,  and  (2\  have  good  right,  full  power,  and  lawful 
authority  to  grant,  bargain,  sell  and  convey  the  same  in  manner  and  form 
aforesaid,  and  (3),  that  the  same  are  free  and  clear  from  att  former  and  other 
grants,  bargains,  sales,  liens,  taxes,  assessments  and  incumbrances,  of  what 
kind  or  nature  soever;  (4),  and  the  above  bargained  premises,  in  the  quiet  and 
peaceable  possession  of  the  said  party  of  the  second  part,  his  heirs  and  assigns, 
against  all  and  every  other  person  or  persons  lawfully  claiming  or  to  claim  the 
whole  or  any  part  thereof,  the  said  party  of  the  first  part  shall  and  will  War- 
rant and  Forever  Defend. 

In  case  the  grantee  or  his  assigns  are  ousted  they  may  fall  back  on 
the  grantor  or  his  heirs  and  demand  damages  for  the  loss.  In  most 
of  the  States  the  measure  of  damages  is  the  money  paid  for  it  with 
interest  (deducting  rents  and  profits)  and  the  legal  cost  of  defending 
the  suit. 

An  ordinary  warranty  deed  contains  only  the  last  two  covenants. 
It  will  be  readily  seen  that  these  covenants  are  not  broken  until  the 


220  REAL  ESTATE. 

grantee  or  his  assigns  are  actually  evicted,  but  the  first  two  covenants 
are  broken  if  at  all  immediately  on  delivery  of  the  deed. 

588.  Conclusion. — This  mentions  the  date  of  the  deed  and  the 
fact  of  its  execution.     The  date  may  be  at  the  beginning  of  the  deed 
or  at  its  conclusion  and  the  real  date  may  be  given  or  a  fictitious  one 
substituted.     If  a  deed  have  no  date  it  will  take  effect  from  its 
delivery. 

In  witness  whereof,  The  said  party  of  the  first  part  have  hereunto  set 
their  hands  and  seals,  the  day  and  year  first  above  written. 

589.  Signing  and  Sealing. — The  fifth  requisite  of  a  valid  deed  is 
that  it  must  be  signed  and  sealed.     (See  sec.  28.)     Some  few  States 
as  we  have  seen  have  abolished  seals.     Where  this  is  the  case  they 
need  not  be  affixed  to  deeds. 

Signed,  Sealed  and  Delivered  in 

the  Presence  of  CHARLES  H.  HATHAWAY,  [SEAL] 

J.  L.  TALBOT,  LAURA  HATHAWAY,  [SEAL] 

J.  H.  SMITH. 

590.  Acknowledgment. — This  may  generally  be  done  before  any 
officer  having  an  official  seal ;  it  may  also  be  done  before  a  justice  of 
the  peace.     The    acknowledgment    is   taken  by  the  grantor  going 
before  a  person  qualified  by  law  to  receive  acknowledgments,  and 
exhibiting  the  deed,  acknowledging  it  as  his  free  act  and  voluntary 
deed,  to  which  the  officer  certifies  on  the  deed  under  his  official  seal. 
In  most  States  a  deed  must  be  acknowledged  in  order  to  be  entitled 
to  record.     In  some  States  the  officer  must  examine  the  wife  separate 
and  apart  from  her  husband,  and  certify  to  its  being  her  free  and 
voluntary  act. 

As  between  the  parties  themselves,  a  deed  is  valid  though  not 
acknowledged.  In  some  States,  in  addition  to  being  officially 
acknowledged,  the  deed  must  be  attested  by  one  or  more  witnesses. 
An  attorney,  A  B,  who  executes  a  deed  for  another,  C  D,  should 
acknowledge  it  as  "the  free  and  voluntary  act  of  the  said  CD,"  and 
not  his  own. 

State  of  Illinois,  } 

County  of  Cook.  \  I,  Lawrence  Y.  Sherman,  a  Notary  Public  in  and 

for  the  said  County,  in  the  State  aforesaid,  Do  Hereby  Certify  that 
Charles  H.  Hathaway  and  Laura  Hathaway,  his  wife,  personally  known  to 
me  to  be  the  same  persons  whose  names  are  subscribed  to  the  foregoing  instru- 
ment, appeared  before  me  this  day  in  person,  and  acknowledged  that  they 


EBAL  ESTATE    CONVEYANCES.  221 

signed,  sealed  and  delivered  the  said  instrument  as  their  free  and  voluntary 
act,  for  the  uses  and  purposes  therein  set  forth,  including  the  release  and 
waiver  of  the  right  of  homestead. 

Given  under  my  hand  and  official  seal,  this  twenty-fourth  day  of  August, 
A.  D.  1901. 

LAWRENCE  Y.  SHERMAN, 
[SEAL.]  Notary  Public. 

591.  Delivery. — It  is  essential  to  the  validity  of  an  instrument 
that  it  be  delivered.     If  it  be  stolen  it  has  no  effect.     It  may  be 
handed  to  a  third  person  to  deliver  on  the  happening  of  a  certain 
event,  in  which  case  it  is  called  an  escrow. 

592.  Release    of   Dower   and   Homestead. — This    subject  is   now 
regulated  by  statute,  and  it  will,  therefore,  be  impossible  to  give  any 
absolute  general  rule  in  regard  to  it.     By  way  of  general  explanation 
we  may  say  that  the  object  of  a  wife's  joining  in  the  deed  with  her 
husband,  is  often  to  release  these  estates.     The  deed  and  acknowl- 
edgment should  name  and  describe  her  as  the  wife  of  the  grantor. 
In  many  States  her  signing  the  deed  does  not  release  anything  unless 
it  contains  definite  words   expressing  her  intention  to   release   or 
convey  such  rights  or  interests.     The  husband  may  sell  and  give 
possession  without  the  wife's  joining,  but  the  grantee's  title  would 
be  defective,  and  subject  to  the  wife's  estate,  to  take  effect  on  the 
death  of  her  husband. 

And  the  said  party  of  the  first  part  hereby  expressly  waives  and  releases  any 
and  all  right,  benefit,  privilege,  advantage  and  exemption,  under  or  by  virtue 
of  any  and  all  statutes  of  the  State  of  Illinois  providing  for  the  exemption  of 
homesteads  from  sale  on  execution  or  otherwise. 

593.  Recording. — The  system  of  registering  titles  is  common  to  all 
States,  and  is  certainly  an  admirable  feature  of  our  real  estate  law. 
The  entire  instrument  is  copied  and  preserved  in  fire-proof  vaults, 
and  these  records  are  open  to  the  inspection  of  the  public,  who  are 
supposed  to  take  notice  of  all  facts  contained  therein.      By  this 
means  every  purchaser  may  ascertain  exactly  the  title  he  is  getting. 
Other  things  being  equal,  priority  of  record  gives  priority  of  title. 
For  this  reason  the  recorder  certifies  on  the  instrument  to  the  fact  of 
its  being  recorded,  and  gives  the  day  and  hour  it  was  filed.     The 
instrument  is  deemed  to  be  recorded  as  soon  as  it  is  delivered  for 
record. 

594.  Covenant  Against  Grantor. — If  the  vendor  is  not  willing  to 
give  a  full  warranty  deed,  he  may  be  willing  to  give  a  deed  with 


222  REAL   ESTATE. 

warranties  against  his  own  acts  only.  In  this  case  the  following 
provision  may  be  inserted  before  the  conclusion  in  a  quit  claim  deed. 

And  The  said  parties  of  the  first  part,  for  themselves  and  their  heirs,  exec- 
utors and  administrators,  do  hereby  covenant,  promise  and  agree  to  and  ivith 
the  said  party  of  the  second  part,  his  heirs  and  assigns,  that  the  said  prem- 
ises, against  the  claim  of  all  persons  claiming  or  to  claim  by,  through  or  under 
them,  only  they  will  forever  warrant  and  defend. 

595.  Quit  Claim  Deed. — A  quit  claim  deed  simply  conveys  what- 
ever right  the  grantor  has,  be  that  much  or  little.  A  warranty  deed 
is  to  be  preferred  by  a  purchaser,  not  alone  on  account  of  the  cove- 
nants, but  also  from  the  fact  that  a  warranty  deed  conveys  after 
acquired  title,  while  a  quit  claim  does  not. 

A  sells  B  a  certain  piece  of  ground,  and  gives  a  warranty  deed,  but  at  the 
time  of  the  sale  A's  title  was  defective,  another  party  holding  an  interest  in  it. 
Afterwards  A  secures  to  himself  this  outstanding  title,  but  it  passes  at  once 
to  B  by  the  warranty  deed  already  given. 

QUIT   CLAIM  DEED. 

IT  MS  11  tlfcCntUtC,  Made  this  22d  day  of  August,  in  the  year  of  our  Lord 
One  Thousand  Nine  Hundred  One,  between  Charles  H.  Hathaway  and  Laura 
Hathaway,  his  wife,  of  the  City  of  Chicago,  in  the  County  of  Cook,  and  the 
State  of  Illinois,  party  of  the  first  part,  and  Martin  F.  Deale,  of  the  Town- 
ship of  Pella,  in  the  County  of  Ford,  and  State  of  Illinois,  party  of  the 
second  part, 

Witnesseth,  That  for  and  in  consideration  of  the  sum  of  Two  Thousand 
Dollars  in  hand  paid  by  said  party  of  the  second  part,  the  receipt  whereof  is 
hereby  acknowledged,  and  the  said  party  of  the  second  part  forever  released 
and  discharged  therefrom,  the  said  party  of  the  first  part  has  remised,  released, 
sold,  conveyed  and  quit  claimed,  and  by  these  Presents  does  remise,  release,  sell, 
convey  and  Quit  Claim  unto  the  party  of  the  second  part,  his  heirs  and 
assigns  FOREVER,  all  the  right,  title,  interest,  claim  and  demand,  which  said 
party  of  the  first  part  has  in  and  to  the  following  described  lot,  piece  or 
parcel  of  land,  situated  in  the  County  of  Cook  and  State  of  Illinois,  and 
known  and  described  as  follows,  to-wit : 

The  South  East  quarter  (S.  E.  %)  of  the  North  West  quarter  (N.  W.  14)  of 
Section  twenty-nine  (%9),  Township  thirty-eight  north  (38  N.)  of  Mange  four- 
teen (R.  14),  East  of  the  third  principal  meridian. 

To  Have  and  to  Sold  the  same,  together  with  all  and  singular  the  appur- 
tenances and  privileges  thereunto  belonging,  or  in  any  wise  thereunto  apper- 
taining ;  and  all  the  estate,  right,  title,  interest  and  claim  whatever,  of  the  said 
party  of  the  first  part,  either  in  law  or  equity,  to  the  only  proper  use,  benefit 
and  behoof  of  the  said  party  of  the  second  part,  his  heirs  and  assigns  forever. 

And  the  said  party  of  the  first  part  hereby  expressly  waives  and  releases 
any  and  all  right,  benefit,  privilege,  advantage  and  exemption,  under  or  by 


BEAL    ESTATE    CONVEYANCES.  223 

virtue  of  any  and  all  statutes  of  the  State  of  Illinois  providing  for  the  exemp- 
tion of  homesteads  from  sale  on  execution  or  otherwise. 

In  witness  whereof,  the  said  party  of  the  first  part  have  hereunto  set 
their  hands  and  seals  the  day  and  year  first  above  written. 

CHARLES  H.  HATHAWAY.  [SEAL] 
LAURA  HATHAWAY.  [SEAL] 

Acknowledged  as  in  section  590. 


CHAPTER     LXIX. 

CONVEYANCES— CONTINUED. 

596.  Mortgage. — A  mortgage  is  a  deed  of  conveyance  operating  as 
a  pledge  of  property  for  the  security  of  a  certain  debt  or  obligation. 
It  is  in  form  an  actual  transfer  of  the  title,  with  a  clause  or  condition 
that  if  the  debt  or  obligation  be  satisfied,  then  the  transfer  to  be  of 
no  effect.  This  is  called  the  clause  of  defeasance.  The  one  who 
gives  the  mortgage  is  called  the  mortgagor,  and  the  one  to  whom 
the  mortgage  is  given  is  called  the  mortgagee.  A  mortgage  is  exe- 
cuted the  same  as  a  deed.  The  wife  should  join  in  a  mortgage  the 
same  as  in  a  deed,  except  in  case  of  a  mortgage  for  part  of  the  pur- 
chase money,  when  she  need  not  sign,  though  she  may  do  so. 

MORTGAGE. 

UbtS  In^entUtC,  Made  this  24th  day  of  August,  in  the  year  of  our 
Lord  One  Thousand  Nine  Hundred  and  One,  between  Martin  F.  Deale,  of  the 
Township  of  Pella,  in  the  County  of  Ford,  and  State  of  Illinois,  party  of  the 
first  part,  and  Charles  H.  Hathaway,  of  the  City  of  Chicago,  in  the  County 
of  Cook  and  State  of  Illinois,  party  of  the  second  part  : 

Whereas,  The  said  Martin  F.  Deale  is  justly  indebted  to  the  said  party  of 
the  second  part  in  the  sum  of  One  Thousand  Dollars,  evidenced  by  one  certain 
promissory  note  of  even  date  herewith,  bearing  6  per  cent  interest  per  annum 
from  date,  and  due  one  year  from  date. 

Now,  Therefore,  this  Indenture  Witnesseth,  That  the  said  party  of 
the  first  part,  for  the  better  securing  the  payment  of  the  money  aforesaid,  with 
interest  thereon,  according  to  the  tenor  and  effect  of  the  said  promissory  note 
above  mentioned,  and  also  in  consideration  of  the  further  sum  of  One  Dollar 
to  him  in  hand  paid  by  the  said  party  of  the  second  part,  at  the  delivery  of 
these  presents,  the  receipt  whereof  is  hereby  acknowledged,  has  granted,  bar- 
gained, sold,  remised,  released,  conveyed,  aliened  and  confirmed,  and  by  these 


224  EEAL   ESTATE. 

presents  does  grant,  bargain,  sell,  remise,  release,  convey,  alien  and  confirm 
unto  the  said  party  of  the  second  part,  and  to  his  heirs  and  assigns  FOREVER 
all  the  following  described  lot,  piece  or  parcel  of  land,  together  with  all  the 
rents,  issues  and  profits  thereof,  situate  in  the  City  of  Chicago,  County  of 
Cook,  and  State  of  Illinois,  and  known  and  described  as  follows,  to-wit  : 

The  South  East  quarter  (S.  E.  #)  of  the  North  West  quarter  (N.  W.  X)  of 
Section  twenty-nine  (29),  Township  thirty-eight  north  (38  N.),  of  Range  four- 
teen (R.  14),  East  of  the  third  principal  meridian. 

To  Save  and  to  Sold  the  same,  together  with  all  and  singular  the  tene- 
ments, hereditaments,  privileges  and  appurtenances  thereunto  belonging,  or  in 
any  wise  appertaining ;  and  also  all  the  estate,  interest  and  claim  whatsoever, 
in  law  as  well  as  in  equity,  which  the  said  party  of  the  first  part  has  in  and 
to  the  premises  hereby  conveyed  unto  the  said  party  of  the  second  part,  his 
heirs  and  assigns,  and  to  their  only  proper  use,  benefit  and  behoof  forever. 

Provided,  always,  And  these  presents  are  upon  this  express  condition, 
that  if  the  said  party  of  the  first  part,  his  heirs,  executors,  administrators  or 
assigns,  shall  well  and  truly  pay,  or  cause  to  be  paid,  to  the  said  party  of  the 
second  part,  his  heirs,  executors,  administrators  or  assigns,  the  aforesaid  sum 
of  money,  with  interest  thereon,  at  the  time  and  in  the  manner  specified  in  the 
above  mentioned  promissory  note,  according  to  the  true  intent  and  meaning 
thereof,  then  and  in  that  case  these  presents  and  everything  herein  expressed, 
shall  be  absolutely  null  and  void. 

And  in  Consideration  of  the  money  loaned  as  aforesaid  to  the  said  party 
of  the  first  part,  and  in  order  to  create  a  first  lien  and  incumbrance  on  said 
premises  under  this  mortgage,  for  the  purposes  aforesaid,  and  to  carry  out 
the  foregoing  specific  application  of  the  proceeds  of  any  sale  that  may  be 
made  by  virtue  hereof  the  said  party  of  the  first  part  does  hereby  release  and 
waive  all  right  under,  and  benefit  of,  the  exemption  and  homestead  laws  of  the 
State  of  Illinois,  in  and  to  the  lands  and  premises  aforesaid,  and  the  proceeds 
of  sale  thereof,  and  agrees  to  surrender  up  possession  thereof  to  the  purchaser 
or  purchasers  at  such  sale,  or  to  any  receiver  that  may  be  appointed  by  the 
court,  peaceably  on  demand. 

(Here  insert  the  same  covenants  as  in  Warranty  Deed. ) 

In  witness  whereof,  The  said  party  of  the  first  part  has  hereunto  set  his 
hand  and  seal  the  day  and  year  first  above  written. 

MARTIN  F.  DEALE.     [SEAL] 

In  this  form  are  often  inserted  three  further  provisions;  the  first 
provides  that  if  any  installment  of  interest  be  not  paid  when  due, 
then  the  whole  debt  may  be  declared  due  and  payable  at  the  option 
of  the  mortgagee.  The  second  obligates  the  mortgagor  to  keep  any 
building  insured  against  fire  in  some  solvent  company,  and  in  favor 
of  the  mortgagee,  "as  his  interest  may  appear."  In  case  of  failure  to 
insure  the  property,  the  mortgagee  is  to  have  the  right,  and  to  add 
the  cost  to  the  debt.  The  third  clause  refers  to  the  payment  of 
taxes  and  assessments,  and  gives  the  mortgagee  the  same  rights  as 


BEAL   ESTATE   CONVEYANCES.  225 

the  provision  in  reference  to  insurance.  In  some  States  when  the 
mortgage  binds  the  mortgagor  to  pay  an  attorney's  fee  in  case  suit 
is  brought  to  foreclose  the  mortgage,  it  will  be  upheld,  and  added 
in  with  the  other  court  costs. 

597.  Equity  of  Redemption. — A    mortgage  does    not  convey  the 
entire  estate  of  the  mortgagor,  but  still  leaves  with  him  an  estate 
called  the  equity  of  redemption.     That  is,  he  has  the  right  to  a 
reconveyance  of  the  property  on  tendering  the  full  amount  of  the 
debt,  including  interest.     This  equity  of  redemption  may  be  sold 
and  conveyed  by  deed,  and  the  grantee  will  then  take  the  place  of 
the  mortgagor. 

598.  Sale  of  the  Mortgage. — The  giving  of  a  mortgage  divides  the 
estate  into  two  parts.     We  have  seen  that  the  mortgagor  may  sell 
and  convey  his  part,  and  so  may  the  mortgagee  also.     This  is  usually 
accomplished  by  a  deed  of  assignment,  which  may  be  in  the  follow- 
ing form : 

ASSIGNMENT  OF  A  MORTGAGE. 

fmow  Bll  dfcen  bB  ttbeae  presents.  That  I,  Cassius  o.  Smith,  of  the  aty 

of  Peoria,  in  the  State  of  Illinois,  the  mortgagee  named  in  a  certain  mortgage 
deed,  given  by  Edgar  P.  Farr,  of  Sioux  City,  in  the  State  of  Iowa,  to  said 
Cassius  O.  Smith,  to  secure  the  payment  of  Four  Hundred  Dollars,  dated  the 
8th  day  of  September,  A.  D  1901,  and  recorded  in  the  Recorder's  Office  of 
Peoria  County,  in  the  State  of  Illinois,  in  Book  N  of  mortgages,  page  326,  in 
consideration  of  the  sum  of  Four  Hundred  and  Twenty  Dollars  to  me  paid  by 
Albert  A.  Blair,  of  Chatsworth,  in  the  State  of  Illinois,  the  receipt  whereof  is 
hereby  acknowledged,  do  hereby  sell,  assign,  transfer,  set  over  and  convey  unto 
said  Albert  A.  Blair  and  his  heirs  and  assigns,  said  mortgage  deed,  the  real 
estate  thereby  conveyed,  and  the  promissory  note,  debt  and  claim  thereby 
secured,  and  the  covenants  therein  contained. 

To  Save  and  to  Hold  the  same  to  him,  the  said,  Albert  A.  Blair,  and  his 
heirs  and  assigns,  to  his  and  their  use  and  behoof  forever  ;  subject,  neverthe- 
less, to  the  conditions  therein  contained,  and  to  redemption  according  to  law. 

In  witness  whereof,  the  said  party  of  the  first  part  has  hereunto  set 
his  hand  and  seal  the  day  and  year  first  above  written. 

CASSIUS  O.  SMITH.    [SEAL] 

While  a  formal  assignment  is  considered  preferable,  yet  the  mere 
endorsement  and  transfer  of  the  notes,  secured  by  the  mortgage, 
carry  with  them  all  rights  under  the  mortgage. 

599.  Second  Mortgage. — Not    only  may    the    mortgagor  sell  his 
estate,  but  he  may  mortgage  it  as  often  as  he  can  find  a  mortgagee 
willing  to  accept  a  mortgage.     These  mortgages  have  preference  in 
their  order.     If  it  takes  the  entire  property  to  satisfy  the  first  mort- 


226  EEAL    ESTATE. 

gage,  subsequent  mortgagees  will  get  nothing.     If  the  first  mortgage 
be  paid  and  discharged,  this  will  advance  the  second  to  first  place. 

600.  Mortgagee's  Remedies. — A  mortgage,  as  we  have  said,  is  drawn 
to  secure  either  a  debt  or  an  obligation.     In  case  it  is  the  former,  it 
is  usually  evidenced  by  one  or  more  notes,  which  are  fully  described 
in  the  mortgage.     The  mortgagee  may  sue  on  these  notes  and  dis- 
regard the  mortgage,  in  which  case  he  gets  a  personal  judgment 
against  the  mortgagor,  a  judgment  that  will  be  a  lien  upon  all  his 
property,  not  exempt  (sec.  92),  or  he  may  foreclose,  (sec.  601),  and 
in  his  bill  of  foreclosure  he  may  ask  that  in  case  the  proceeds  of  the 
sale  of  the  property  do  not  satisfy  the  debt,  that  he  may  have  a 
personal  judgment  over  for  the  balance.     If  one  or  more  notes  are  not 
given,  but  only  the  mortgage  evidences  the  debt,  no  liability  exists  for 
the  deficit  in  case  the  property  when  sold  does  not  pay  the  debt  in  full. 

When  one  buys  real  property,  that  is  mortgaged,  the  deed  that  he 
gets  may  recite  that  he  buys  it  '•''subject  to  the  mortgage,"  or  "that 
he  assumes  the  mortgage."  There  is  a  vast  difference  in  the  mean- 
ing of  these  provisions.  In  the  former,  if  the  sale  of  the  premises 
does  not  produce  enough  to  pay  the  mortgage  debt,  no  personal 
judgment  can  be  secured  against  the  purchaser  of  the  equity  of 
redemption.  In  the  latter  case,  a  judgment  may  be  secured  against 
him  for  the  deficit,  for  he  has  assumed  its  payment,  which  agree- 
ment inures  to  the  benefit  of  the  mortgage  creditor. 

601.  Foreclosure. — The  course  most  commonly  pursued  to  realize 
on  a  mortgage  when  there  has  been  a  default,  is  to  file  a  bill  of  fore- 
closure.    This  is  now  largely  a  matter  of  statute.     The  decree  of 
court  gives  power  to  advertise,  for  a  certain  time,  the  property  for 
sale,  after  which  it  is  sold  at  public  sale,  to  the  highest  bidder.     If 
anything  remains  of  the  sale  price  after  the  payment  of  the  debt  and 
costs  it  is  turned  over  to  the  mortgagor.     This  does  not  entirely  shut 
the  mortgagor  out,  for  he  still  has  some  time,  called  the  period  of 
redemption,  in  which  to  repay  the  purchaser,  and  regain  title  to  his 
property,    and   usually  during  this  period  he  may  retain  possession 
thereof. 

602.  Discharge. — When  a  mortgage  is  paid  it  should  be  discharged 
of  record,  so  that  the  title  may  be  cleared.     This  may  be  done  by 
the  mortgagee  making  a  personal  discharge  on  the  margin  of  the 
record,  or  when  this  is  impracticable,  it  should  be  done  by  a  release 
deed,  which  is  acknowledged,  and  recorded  as  before  described. 


REAL   ESTATE    CONVEYANCES.  227 

RELEASE   DEED. 

Bll  fl&en  b£  tThese  Presents,  Tfiat  I,  Charles  H.  Hathaway,  of  the 
County  of  Cook  and  State  of  Illinois,  for  and  in  consideration  of  One  Dollar, 
and  for  other  good  and  valuable  considerations,  the  receipt  whereof  is  hereby 
confessed,  do  hereby  remise,  convey,  release  and  quit-claim  unto  Martin  F. 
Deale,  of  the  County  of  Ford  and  State  of  Illinois,  all  the  right,  title,  inter- 
est, claim  or  demand  whatsoever  I  may  have  acquired  in,  through  or  by  a  cer- 
tain mortgage  deed  bearing  date  the  '24th  day  of  August,  A.  D.  1901,  and 
recorded  in  the  Recorder's  office  of  Cook  County,  in  the  State  of  Illinois,  in 
Book  M  of  Mortgages,  page  187,  to  the  premises  therein  described,  as  follows, 
to-wit : 

The  South  East  quarter  (S.  E.  %)  of  the  North  West  quarter  (N.  W.  *4)  of 
Section  twenty-nine  (~9),  Township  thirty-eight  nor*h  (38  N.)  of  Range  four- 
teen (R.  IJf),  East  of  the  third  principal  meridian. 

Together  with  all  the  appurtenances  and  privileges  thereunto  belonging  or 
appertaining, 

Witness,  my  hand  and  seal  this  first  day  of  September,  A.  D.  1901. 

CHARLES  H.  HATHAWAY.    [SEAL] 

The  law  does  not  impose  on  the  mortgagee  the  duty  of  preparing 
this  release,  but  it  does  impose  on  him  the  duty  to  execute  it  when 
presented  to  him,  together  with  his  reasonable  expenses  for  doing  so. 
In  many  States  he  is  liable  to  heavy  damages  for  his  refusal. 

603.  Trust  Deed. — In  many  States,   and  especially  in  the  large 
cities,  trust  deeds  have  largely  superseded  mortgages.     In  the  trust 
deed  a  conveyance  is  made  to  a  third  person,  called  the  trustee,  who 
holds  the  naked  title  for  the  benefit  of  the  creditor.     In  case  the 
debt  is  represented  by  notes,  it  enables  the  creditor,  called  also  the 
beneficiary,  to  sell  and  dispose  of  these  notes  to  different  parties,  or 
all  to  one  party,  and  the  trustee  holds  the  title  to  the  property  for 
the  benefit  of  all.     For  this  reason  it  is  much  preferred  by  those 
creditors  who  expect  to  transfer  the  notes. 

The  remedy  formerly  was  to  have  the  trustee  sell  the  property 
immediately  on  default,  and  thus  deprive  the  debtor  of  his  equity  of 
redemption,  but  many  states  now  provide  by  Statute  that  a  trust  deed 
must  be  regularly  foreclosed  in  the  same  manner  as  a  mortgage. 

604.  Eeal  Estate  Contract. — When  land  is  purchased,  the  sale  is 
usually  evidenced  by  a  contract,   which  must  be  in  writing,  (sec. 
99).     This  contract,  it  will  be  observed,  contains,  in  addition  to  all 
the  essential  features  of  the  agreement,  a  provision  that  the  seller  is 
to  furnish  to  the  purchaser  a  complete  abstract  of  title,  showing  an 
indefeasible  title  in  the  seller,  and  that  the  purchaser  is  to  have  a 


228  BEAL   ESTATE. 

certain  length  of  time  in  which  to  examine  it.  When  the  title  has 
been  found  perfect,  then  the  sale  is  completed  by  paying  over  the 
money  and  taking  a  deed,  or  complying  with  any  other  provisions  of 
the  contract.  It  will  thus  be  seen  tnat  the  office  of  the  contract  is 
usually  to  bridge  over  the  period  between  the  agreement  and  such 
time  as  the  purchaser  can  satisfy  himself  that  the  title  is  good. 

REAL  ESTATE   CONTRACT. 


TKHitneSSetb,  That  Charles  H.  Hathaway 
hereby  agrees  to  sell,  and  Martin  F.  Deale  agrees  to  purchase  at  the  price  of 
Two  Thousand  Dollars  the  following  described  real  estate,  situated  in  Cook 
County,  Illinois:  The  South  East  quarter  (S.  E.  %)  of  the  North  West  quar- 
ter (N.  W.  %)  of  Section  twenty-nine  (29),  Township  thirty-eight  north  (38  N.), 
of  Range  fourteen  (R.  14)  ,  East  of  the  third  principal  meridian.  Subject  to 
(1)  existing  leases,  the  purchaser  to  be  entitled  to  the  rents,  if  any,  from  the 
time  of  delivery  of  Deed  ;  (2)  all  taxes  and  assessments  levied  after  the  year 
1901  ;  (3)  any  unpaid  special  taxes  or  assessments  levied  for  improvements 
not  yet  made. 

Said  Purchaser  has  paid  One  Hundred  Dollars  as  earnest  money,  to  be 
applied  on  said  purchase  when  consummated,  and  agrees  to  pay,  within  five 
days  after  the  title  has  been  examined  and  found  good,  the  further  sum  of 
Nine  Hundred  Dollars,  at  the  office  of  Charles  H.  Hathaway,  Chicago,  pro- 
vided a  good  and  sufficient  full  covenant  Warranty  Deed,  conveying  to  said 
purchaser  a  good  title  to  said  premises  (subject  as  aforesaid),  shall  then  be 
ready  for  delivery.  The  balance  to  be  paid  as  follows  :  One  Thousand  Dollars 
in  one  year,  with  interest  from  August  2^th,  at  the  rate  of  6  per  cent  per 
annum,  payable  annually,  to  be  secured  by  notes  and  mortgage,  of  even  date 
herewith,  on  said  premises.  A  complete  Abstract  of  Title,  or  merchantable 
copy,  to  be  furnished,  within  a  reasonable  time,  with  a  continuation  thereof 
brought  down  to  this  date.  In  case  the  title,  upon  examination,  is  found 
materially  defective,  within  ten  days  after  said  Abstract  is  furnished,  then, 
unless  the  material  defects  be  cured  within  sixty  days  after  written  notice 
thereof,  the  said  earnest  money  shall  be  refunded,  and  this  contract  to  become 
inoperative. 

Should  said  purchaser  fail  to  perform  this  contract  promptly  on  his  part, 
at  the  time  and  in  the  manner  herein  specified,  the  earnest  money  paid  as 
above  shall,  at  the  option  of  the  vendor,  be  forfeited  as  liquidated  damages, 
including  commissions  payable  by  vendor,  and  this  contract  shall  be  and 
become  null  and  void.  Time  is  of  the  essence  of  this  contract,  and  of  all  the 
conditions  thereof. 

This  Contract  and  earnest  money  shall  be  held  by  J.  L.  Talbot,  for  the 
mutual  benefit  of  the  parties  hereto. 

In  Testimony  whereof,  said  parties  hereunto  set  their  hands,  this  22d 
day  of  August,  A.  D.  1901. 

CHARLES  H.  HATHAWAY. 
MARTIN  F.  DEALE. 


BEAL  ESTATE   CONVEYANCES.  229 

605.  Abstract  of  Title. — This  is  a  brief  epitome  of  the  records  of 
title  pertaining  to  any  given  piece  of  realty.  It  is  prepared  by  per- 
sons skilled  in  the  matter.  Only  the  essential  features  of  a  convey- 
ance are  given,  but  if  there  are  any  defects  in  a  conveyance  they  are 
noted.  Liens,  including  judgments,  are  noted,  in  fact  every  tiling  of 
record  having  a  bearing  on  the  title  is  noted  for  the  inspection  of  the 
examining  attorney. 

PART  OF  AN  ABSTRACT  OF  TITLE. 

Frank  Seifried,  bachelor,  Quit  Claim  Deed,  dated  March  26,  1880,  recorded  Aug.  20, 

17  to  1 88 1,  book  1,047,  page  639. 
George  F.  Barman.  Consideration  $5A*. 

Doc.  343,839.  Conveys  and  quit  claims  all   interest  in  the  following  described 

real  estate,  to  wit:     Lot  14  in  Block  13,  in   Duncan's  Addition  to 

Chicago;  also  the  North  half  of  the  South  half,  and  the  South  half  of  the  North  half  of  the  North  East 
quarter  of  the  North  East  quarter  of  Section  13,  T.  38  N.,  R.  13  E.  of  the  3d  P.  M.,  in  Cook  County, 
Illinois. 

Homestead  rights  waived. 
Acknowledged  March  26,  1880. 

Henrietta    L.    McGrath    and        Mortgage,  dated  March  18,  1881,  recorded  March  22,  1881, 
Thomas  McGralh  book  1,076,  page  270. 

18  to  To  secure  payment  of  $500. 

Jacob  R.  Cusler  Mortgage  and  warrant  all  their  undivided  interest  in  and  to  the 

Doc.  316,193.  following  described  real  estate,  to  wit:     Lot   14  in  Block  13,  in 

Duncan's  Addition  to  Chicago.     Also  the  North  half  of  the  South 

half,  and  the  South  half  of  the  North  half  of  the  North  East  quarter  of  the  North  East  quarter  of 
Section  13,  T  38  N.,  R.  13  E.  of  the  3rd  P   M.,  except  about  I  ^  acres  heretofore  sold  to  the  ....  park 
commissioners,  in  Cook  Co.   111. 
Acknowledged  March  18,  1881 

Jacob  R.  Cusler  Release,  dated   Aug    20,   1881,  recorded  Aug.  20,  1881,  book 

19  to  ','34.  Paie  223. 
Henrietta     L      McGrath     <£•        Consid.  $!<"  &c. 

Thomas — McGrath.  Releases  all  right,  'itle  interest,  &c.,  acquired  by  mortgage,  bear- 

Doc    343,84.1  ing  date   March  18,  1881,  and  recorded  &c.,  in  book  1,076  of  rec- 

ords, page  270,  to  the  premises  therein  described  as  foHows,  to  wit: 

Lot  14  in  Block  13  in  Duncan's  Addition  to  Chicago,  also  North  half  of  South  half  and  South  half  of 
the  North  half  of  the  North  East  quarter  of  North  East  quarter  of  Section  13,  T  38  N.,  R    13  E.  oJ 
the  3d  P.  M.,  except  about  i^  acres  heretofore  sold  to  the-park  commissioners 
Acknowledged  Aug.  20,  1881 

We  have  examined  our  indexes  to  records  in  Conk  County,  Illinois,  and  find: 

No  conveyances  of  the  premises  described  in  the  caption  hereto,  executed  by  any  of  the  parties 
named  herein  as  grantor  or  grantee,  shown  thereby  to  have  been  recorded  in  the  recorder's  office  of 
said,  county  since  February  12.  1875,  except  as  shown  on  the  twenty-one  (21)  preceding  sheets. 

No  judgments  rendered  in  any  court  of  record  in  said  county  against  Adolph  Carl  Heinrich  Bor- 
mann  on  July  6  &  7.  1874,  or  smce  Feby.  12,  1875,  &  prior  to  Aug.  30,  1881;  Frank  Seifried  since 
Oct.  8,  1871,  &  prior  to  Aug.  21,  1881;  George  Friedrich  Bormann  or  Henrietta  Louise  Bormann  (or 
McGrath)  on  July  6  &  7,  1874,  &  since  Feb.  12,  1875,  or  Henry  Seifried  since  Oct.  8,  1871,  which 
we  consider  liens'  on  said  premises. 

NOTK..  No  examination  made  for  judgments  vs.  the  South  Park  Park  Commissioners,  or  against 
"  Frederick  Bormann." 

No  tax  sales  or  forfeitures  of  said  premises  appearing  on  record  as  had  on  or  since  Septr.  28, 1874, 
not  marked  cancelled  or  paid. 

CHICAGO,  March  thirteenth  (nth),  1882. 

HADDOCK,  VALLETTE  &  RICKCORDS, 

Successors  to  Haddock,  Coxe  &  Co. 


230  EEAL   ESTATE. 


CHAPTER    L. 
LANDLORD  AND  TENANT. 

606.  Introduction. — The  relation  between  landlord  and  tenant  has 
become  very  important.  The  owner  is  the  landlord,  or  lessor,  and 
the  person  to  whom  the  property  is  leased  is  called  the  tenant,  or 
lessee.  The  compensation  agreed  to  be  paid  is  the  rent,  and  the 
contract,  whether  verbal  or  written,  is  called  the  lease. 

LEASE. 

T£btS    HnJ>6ntUref  Made  the  28th  day  of  August,  in  the  year  of  our  Lord 
one  thousand  nine  hundred  one, 

Witnesseth,  That  I,  Henry  T.  Clarke  of  the  City  of  Jacksonville  in  the 
County  of  Morgan  and  State  of  Illinois,  do  hereby  lease,  demise,  and  let  unto 
Henry  Templeton  of  the  City  of  Chicago,  County  of  Cook  and  State  of  Illinois, 
a  certain  house  in  said  last  named  city,  known  as  No.  516  W.  Taylor  Street^ 
with  the  land  under  and  adjoining  the  same. 

To  Hold  for  the  term  of  one  year  from  the  30th  day  of  August,  1901,  yield- 
ing and  paying  therefor  the  rent  of  twelve  hundred  dollars. 

And  said  lessee  does  promise  to  pay  the  said  rent  in  four  quarterly  pay- 
ments on  the  first  day  of  September,  December,  March,  June,  and  to  quit  and 
deliver  up  the  premises  to  the  lessor  or  Ms  attorney,  peaceably  and  quietly  at 
the  end  of  the  term,  in  as  good  order  and  condition,  reasonable  use  and  wear 
thereof,  fire  and  other  unavoidable  casualties  excepted,  as  the  same  now  are  or 
may  be  put  into  by  the  said  lessor,  and  to  pay  the  rent  as  above  stated,  and 
all  taxes  and  duties  levied  or  to  be  levied  thereon  during  the  term,  and  also  the 
rent  and  taxes  as  above  stated,  for  such  further  time  as  the  lessee  may  hold  the 
same,  and  not  make  or  suffer  any  waste  thereof ;  nor  lease,  nor  underlet,  nor 
permit  any  other  person  or  persons  to  occupy  or  improve  the  same,  or  make  or 
suffer  to  be  made  any  alteration  therein  but  with  the  approbation  of  the  lessor 
thereto  in  writing,  having  been  first  obtained ;  and  that  the  lessor  may  enter 
to  view,  and  make  improvements,  and  to  expel  the  lessee,  if  he  shall  fail  to  pay 
the  rent  and  taxes  as  aforesaid,  or  make  or  suffer  any  strip  or  waste  thereof 

In  witness  wliereof,  The  said  parties  have  hereunto  interchangeably  set 
*heir  hands  and  seals  the  day  and  year  first  above  written. 

Signed,  Sealed  and  Delivered  in  the  Presence  of 

HENRY  T.  CLARKE.        [SEAL] 
HENRY  TEMPLETON.     [SEAL] 


LANDLORD    AND   TENANT.  231 

607.  The  Lease. — This  being  a  contract  within  the  provisions  of 
the  Statute  of  Frauds,  it  must  be  in  writing  if  for  longer  than  one 
year.     In  some  States,  by  statute,  the  time  is  extended  to  three 
years.     By  common  law  the  lease  need  not  be  sealed,  but  if  it  is  to 
be  recorded  it  must,  in  many  States,  be  both  sealed  and  acknowl- 
edged.    In  order  to  protect    tenant   in   the   enjoyment  of    a  long 
lease,  many  States  require  it  to  be  recorded.     In  Connecticut,  Mis- 
sissippi,   Oregon,    Rhode   Island,     South    Carolina,    Tennessee   and 
Vermont,  if  leases  are  given  for  longer  than  one  year,  they  should  be 
recorded.      In    Maine,   Maryland,   Massachusetts  and    New  Hamp- 
shire, if  for   seven  years  or  longer,  they  should  be  recorded,  and  in 
Texas  all  leases  should  be  recorded.     The  lease  should  be  signed  by 
both  parties,  and  it  should  be  made  in  duplicate,  each  party  retaining 
a  copy. 

608.  Parts  of  a  Lease. — The  words  usually  used  in  the  granting 
clause  are  "demise  and  lease,"  but  these  exact  words  are  not  neces- 
sary.    The  premises  should  be  so  described  that  they  can  be  identi- 
fied with  certainty.     The  length  of  the  lease  is  usually  a  matter  of 
agreement,  and  may  be  as  long  as  the  parties  may  choose,  but  the 
landlord  cannot  grant  for  a  longer  term  than  he  has.     In  large  cities 
a  lease  for  ninety-nine  years,  and  even  longer,  is  not  an  uncommon 
thing. 

609.  The  Rent. — The  amount  of  rent  is  usually  agreed  upon  in 
advance,  but  it  may  be  left  to  future  determination.     It  may  be  a 
gross  sum  in  advance,  a  portion  of  the  crops,  or  a  certain  monthly 
sum.     In  such  cases,  in  the  absence  of  agreement,  it  is  not  due 
until  the  end  of  the  month.     When  nothing  is  said  about  the  place 
of  payment,  it  is  sufficient  if  tendered  on  the  premises. 

610.  Lessor's    Covenants. — The    covenants    frequently    found    in 
leases  on  the  part  of  the  lessor,  are  guarantee  to  the  lessee  of  quiet 
enjoyment,  protection  against  incumbrances,  repairs,  renewal  of  the 
lease,  and  payment  of  taxes  and  assessments.      There  may  be  other 
covenants   peculiar  to    the    special   case.     The   covenant  of  quiet 
enjoyment  is  implied,  and  exists  whether  stated  or  not.     Without  a 
covenant  for  protection  against  incumbrances,  if  the  lessee  should  be 
evicted  by  a  mortgagee,  he  would  lose  all  his  rights  under  his  lease. 
With  the  covenant  he  may  look  to  the  lessor  for  reimbursement. 

The  covenant  to  repair  can  never  rest  upon  mere  implication,  for 


232  REAL   ESTATE. 

the  common  law,  with  regard  to  expenses  of  this  kind,  presumes  so 
strongly  against  the  lessee  that  even  though  the  premises  should  be 
burned  to  the  ground,  he  must  continue  to  pay  rent  in  the  absence 
of  an  express  covenant  to  the  contrary  in  his  lease,  and  yet  have  no 
power  to  compel  the  lessor  to  rebuild.  In  other  words,  the  tenant 
takes  the  premises  for  better  or  for  worse.  If  the  house  is  dilapi- 
dated and  disfigured  as  to  paint  and  paper,  locks  and  blinds,  still  the 
tenant  can  claim  nothing  from  the  landlord.  But  many  written 
leases  provide  for  the  abatement  or  suspension  of  rent  "in  case  of 
fire  or  other  unavoidable  casualty,"  rendering  the  premises  unfit  for 
use,  and  in  some  States  the  rule  has  been  so  altered  as  to  imply  the 
lessor's  covenant  to  repair. 

A  covenant  to  renew  the  lease  gives  the  option  to  the  lessee  to 
leave  or  remain  at  the  end  of  his  term,  as  he  may  elect.  The  cove- 
nant on  the  part  of  the  lessor  to  pay  taxes  and  assessments,  is  gen- 
erally implied. 

611.  Lessee's  Covenants. — The  lessee  may  covenant  to  repair,  to 

pay  rent,  to  pay  taxes  and  assessments,  not  to  assign,  to  use  for 
certain  purpose,  to  redeliver.  As  in  the  case  of  the  lessor's  cov- 
enants, these  may  vary  in  different  cases,  according  to  circumstances. 
As  we  have  seen,  the  lessee's  covenant  to  repair  is  implied  at  common 
law,  he  need  not,  however,  make  good  the  ordinary  ravages  of  time. 
Waste  on  a  tenant's  part,  whether  voluntary  or  permissive,  is  not,  of 
course,  tolerated. 

The  payment  of  rent  according  to  agreement,  scarcely  needs  a  cov- 
enant on  the  part  of  the  lessee,  but  will  be  implied,  and  will  not 
ordinarily  be  excused.  Though  fire  and  flood  may  have  made  the 
premises  uninhabitable,  yet  unless  the  lessee  has  protected  himself  by 
suitable  stipulations  to  the  contrary,  or  a  local  statute  changes  the 
rule  of  the  common  law,  he  must  pay  his  rent. 

When  the  agreement  is  that  the  lessee  is  to  pay  the  taxes  and 
insurance,  the  lease  should  so  state.  So  also  when  the  tenant  is  not 
to  have  the  right  to  assign  or  sub-let,  for  at  common  law  the  tenant 
undoubtedly  has  such  right,  though  he  cannot  release  himself  from 
liability  to  his  landlord.  It  is  usual  for  this  covenant  to  be  inserted  in 
modern  leases,  for  the  landlord  is  disposed  to  choose  his  own  tenants. 
It  is  a  covenant,  however,  which  the  courts  are  not  disposed  to  extend 
by  construction.  If  the  tenant  covenants  "to  return  and  redeliver 
the  house  at  the  end  of  the  term,  in  good  order  and  condition,  reason- 


LANDLORD    AND   TENANT.  233 

able  wear  and  tear  only  excepted,"  he  is  bound  under  this  agreement 
to  rebuild  the  house  if  it  is  burned  down.  For  this  reason  modern 
leases  often  add  to  the  exception  noted  above,  "damage  by  fire  and 
other  unavoidable  accidents  also  excepted,"  or  "damage  by  the 
element  and  the  acts  of  God  excepted."  This  has  the  effect  of 
relieving  the  tenant  from  rebuilding. 

612.  Fixtures. — There  are  some  improvements  a  tenant  may  add 
during  his  term,  and  at  its  termination  may  take  them  away  with 
him.    There  are  other  things  which  he  cannot  take  with  him.    What 
he   cannot  take  are   called   fixtures.      Fixtures   are   those   chattels 
which,  by  being  annexed  as  appendages  to  the  realty,   become  part 
thereof.     This  question  is  not  only  material  as  between  lessor  and 
lessee,  but  between  the  grantor  and  grantee  of  realty.     No  absolute 
rule  suited  to  every  case  can  be  formulated,  for  much  depends  upon 
circumstances  and  intention.     Also  a  more  rigid  rule  seems  to  obtain 
between  grantor  and  grantee  than  between  lessor  and  lessee.     It  has 
been  held  that  whatever  the  tenant  has  added  for  the  purposes  of 
trade,  and  can  be  removed  without  manifest  injury  to  the  realty,  he 
may  remove,  otherwise  it  is  a  fixture.     The  method  of  affixing  is 
often  material  in  determining  this  question.     Thus,  if  fastened  with 
screws,   it  may  evince  a  disposition  01   intention  to  remove  them. 
Among  the  things  held  to  be  removable  in  different  cases  are  these : 
stoves,  pumps,  gates,  looking  glasses,  stables  on  blocks,  gas  fixtures, 
counters   used   for   trade.     Among  those   held  not   removable  are: 
barns  fixed  in  the  ground,  trees,  plants  and  hedges,  not  belonging  to 
a  gardener  by  trade,  windows,  locks  and  keys.     A  tenant  for  years  is 
not  entitled  to  emblements. 

613.  Notice  to  Quit. — One  of  the  ways  by  which  a  tenancy  may  be 
terminated  is  by  a  notice  .to  quit,  given  in  a  regular  manner  and 
under  suitable  circumstances.     If  one  holds  a  lease  for  years,  he  is 
not  entitled  to  a  notice  to  quit  at  the  expiration  of  that  time,  for  he 
has  no  right  to  remain  longer.     But  if,  as  frequently  happens,  the 
lessor  consents  to  the  lessee's  holding  over,  he  then  becomes  a  tenant 
from  year  to  year,  month  to  month,  or  other  appropriate  period  for 
paying  rent,  and  must  be  served  with  a  proper  notice  to  quit  before 
an  action  of  ejectment  can  be  brought.     The  notice  need  not  be 
formal,  but  should  specify  the  particular  day  to  quit,  and  must  be 
written.     The  time  when  a  notice  should  be  given  is  very  important, 
and  is  largely  governed  by  statutory  regulations,  which  should  always 


234  BEAL  ESTATE. 

be  consulted.  In  general,  the  time  is  that  period  which  intervenes 
between  successive  rent  days,  except  it  be  for  the  non-payment  of 
rent,  when  a  much  shorter  period  will  usually  snffice. 

The  right  of  notice  to  quit  is  reciprocal,  and  it  can  be  given  by  the 
tenant  as  well  as  the  landlord. 


REVIEW  QUESTIONS. 

1.  Define  real  property.  2.  What  is  the  source  of  our  real  estate  law?  8. 
What  was  the  feudal  system?  4.  Define  an  estate.  5.  What  is  an  inherit- 
able estate?  6.  What  is  a  fee  simple?  7.  Define  a  fee  tail.  8.  Give  the  non- 
inheritable  estates.  9.  What  is  the  objection  to  a  fee  tail?  10.  What  is  a 
life  estate?  11.  What  rights  has  a  life  tenant?  12.  What  are. the  duties  of  a 
life  tenant?  13.  What  are  emblements?  14.  What  is  the  rule  as  to  whether 
a  tenant  is  entitled  to  emblements  or  not?  15.  Define  dower.  1C.  How  is  it 
released?  17.  Define  curtesy.  18.  What  is  an  estate  for  years?  19.  What  is 
a  freeholder?  20.  What  is  a  remainder?  21.  What  is  a  reversion?  22.  Give 
an  illustration  of  a  remainder,  also  of  a  reversion.  23.  What  is  a  deed?  24. 
Name  eight  kinds  of  deeds.  25.  What  are  the  requisites  of  a  deed?  26. 
What  can  you  say  about  "words  of  inheritance"?  27.  How  does  a  warranty 
deed  differ  from  a  warranty  deed  full  covenant?  28.  What  is  an  acknowl- 
edgment? 29.  What  is  the  object  of  recording  an  instrument?  30.  What  is 
a  quit  claim  deed?  31:  What  is  a  mortgage?  32.  What  is  an  equity  of 
redemption?  33.  Can  a  mortgagee  sell  his  interest  in  the  mortgaged  prem- 
ises? 34.  Can  a  mortgagor  transfer  his  interest  in  the  mortgaged  premises? 
35.  What  remedies  has  a  mortgagee?  36.  How  is  a  mortgage  discharged? 
37.  What  is  the  difference  between  buying  property  subject  to  a  mortgage 
and  buying  it,  assuming  the  mortgage?  88.  What  is  a  trust  deed  and  how 
does  it  differ  from  a  mortgage?  39.  Why  is  it  often  preferred  to  a  mortgage? 
40.  What  is  the  use  of  a  real  estate  contract?  41.  What  is  an  abstract  of 
title?  42.  What  is  a  lease?  43.  What  words  are  used  in  the  granting  clause 
of  a  lease?  44.  What  are  the  lessor's  covenants?  45.  What  are  the  lessee's 
covenants?  45.  What  are  fixtures?  47.  What  is  the  rule  as  to  ownership  of 
fixtures?  48.  How  may  a  landlord  get  possession  of  the  premises? 


FORM    OF   CONTRACT.  235 


FORM  OP  CONTRACT. 

HorCCtUent,   Made  this  28th  day  of  June,  A.  D.  1901, 
by  and  between  Thomas  Knapp,  party  of  the  first  part,  of  Aurora, 
J2          III. ,  and  Charles  Wood,  party  of  the  second  part,  of  Wheaton,  III. , 
witnesseth : 

That  the  said  first  party  in  consideration  of  the  sum  of  $100  to 

be  paid  to  him  as  hereinafter  mentioned  by  the  said  second  party, 

Jj          and  further  in  consideration  of  the  promises  and  covenants  made  by 

the  said  second  party,  agrees  to  grind  for  said  second  party  into 

a  good  and  salable  quality  of  corn  meal  of  the  usual  fineness,  600 

&  <         bus.  of  corn.     The  said  first  party  further  agrees  to  furnish  a  good 

quality  of  cotton  sacks  and  to  deliver  said  corn  meal  to  the  said  sec- 

M  °         ond  party  at  the  mill  of  said  first  party  in  Aurora,  HI.,  on  or  before 

the  first  day  of  August,  A.  D.  1901,  in  said  sacks  properly  tied  and 

jS  §?         °f  ^e  uniform  size  or  weight  of  50  Ibs. 

Said  second  party  agrees  to  furnish  to  said  first  party  at  his  said 

%  mill,  on  or  -before  the  5th  day  of  July,  the  500  bus.  of  shelled  corn 

*(5         mentioned  above,  which  is  to  be  of  a  good  quality  of  "clear  white," 

•go         capable  of  making  the  quality  of  meal  described  above.     Said  second 

party  further  agrees  to  receive  said  meal  at  the  mill  of  said  first 

"  §,        party,  on  the  first  day  of  August,  and  to  pay  to  said  first  party  on 

A  a         the  delivery  or  tender  of  said  meal  at  said  mill  by  said  first  party 

$100  cash. 

Witness  our  hands  to  two  copies  of  this  agreement  executed  in 
duplico.te. 

THOMAS  KNAPP. 
JS  CHARLES  WOOD. 


1.  Write  contract  for  A  of  Lowell,  Mass.,  who  agrees  to  make  for  B  of  Elgin,  111.,  and 
deliver  to  him  f.  o.  b.  Elgin,  50  dozen  ladies'  leather  shoes  according  to  sample  submitted 
and  agreed  upon  and  of  sizes  from  3  to  6.    B  is  to  pay  $1.75  per  pair  30  days  after  delivery. 

2.  "Write  contract  for  A  and  B  of  New  York  City,  who  agree  to  enter  into  partnership 
in  the  manufacturing  of  wagons.     A  to  invest  $35,000  and  his  services.    B  to  invest  $15.000 
and  his  services ;  gains  and  losses  to  be  shared  equally.    The  relation  to  last  five  years. 
Put  in  any  other  provisions  you  may  think  proper. 

3.  Write  contract  for  A  and  B,  each  of  Springfield,  Mass     A  is  to  build  for  B  a  house 
on  a  certain  lot  (describe  it)  and  according  to  plans  and  specifications  annexed.    B  is  to 
furnish  and  deliver  all  materials.    The  consideration  to  be  $1,000  paid  as  follows:  two  hun- 
dred dollars  when  the  foundation  is  complete.    Two  hundred  dollars  when  the  building  is 
enclosed.    The  remaining  six  huudred  dollars  when  said  building  is  fully  completed  and 
the  keys  delivered. 


GLOSSARY. 

Abandonment.    The  relinquishing  of  salvage  to  the  insurers  with  a  view  to 

claiming  the  full  amount  of  insurance. 
Abatement.    Discount  or  reduction  in  price. 
Acceptance.    The  agreement  (usually  written  on  the  bill)  by  the  drawee  of  a 

draft  to  comply  with  the  request  of  the  drawer. 
Acknowledgment.    The  avowal  of  the  genuineness  of  one's  signature  to  a 

document. 

Acquittal.    A  judicial  discharge ;  a  verdict  of  not  guilty. 
Action.    A  legal  process  or  suit. 
Administer.    To  take  charge  of  the  estate  of  a  person  dying  without  making 

a  will,  for  the  purpose  of  settling  the  same. 
Advancement.    A  payment  made  to  a  child  by  a  parent  to  be  considered  as 

a  part  of  his  share  of  such  parent's  estate. 
Affidavit.    A  statement  or  declaration  sworn  to  before  some  one  authorized 

to  administer  oaths. 
Affirm.    To  make  a  solemn  promise  to  tell  the  truth  under  the  penalties  of 

perjury. 

Alias.    A  Latin  word  meaning  otherwise. 
Alibi.    Elsewhere. 

Alien.    A  foreigner  who  is  not  naturalized  in  the  country  of  his  residence. 
Alienate.    To  transfer  property,  particularly  real  property. 
Alimony.    The  allowance  granted  to  a  woman  on  a  legal  separation  from  her 

husband. 

A  mensa  et  thoro.    From  table  and  bed ;  a  limited  divorce. 
Appraise.    To  set  a  price  upon. 
Arbitration.    The  trial  of  a  cause  in  controversy  by  an  unofficial  person  or 

persons  chosen  by  the  contestants. 

Arraign.    To  call  to  answer  to  an  indictment  before  a  court. 
Assault.    An  attempt  to  do  corporal  injury  to  another. 
Assign.    To  make  over  to  another. 

Assignee.    One  to  whom  a  right  or  property  is  made  over. 
Assigns.    Persons  to  whom  property  mentioned  in  a  deed  may  be  assigned. 
Attach.    To  take  by  a  writ  of  attachment. 
Attestation.    The  act  of  witnesses  in  avowing  the  execution  or  signature  of 

a  deed. 

Bail.    To  release  on  security. 

Bailee.    One  to  whom  the  goods  of  another  are  delivered. 
Bailment.    The  delivery  of  goods  to  another  in  trust  for  a  certain  purpose. 
Bailor.    One  who  delivers  goods  in  trust. 

Bankrupt  Law.    A  law  by  which  if  an  insolvent  debtor  assigns  all  his  prop- 
erty to  another  to  be  used  for  the  common  benefit  of  his  creditors  he  is 

forever  discharged  from  further  payment  of  his  existing  debts. 
Battery.    The  unlawful  beating  of  another. 
Betterment.    Improvements  made  on  real  estate. 
Bigamy.    The  offence  of  contracting  a  second  marriage  while  an  undivorced 

husband  or  wife  still  lives. 

236 


GLOSSARY.  237 

Bill.    A  formal  complaint  or  petition  to  a  court  of  equity.    A  proposed  law. 
Bill  of  Lading1.    A  written  contract  of  a  transportation  company  acknowl- 
edging the  receipt  of  goods  and  undertaking  to  carry  and  deliver  them 
to  a  certain  place  for  a  consideration. 

Bill  of  Sale.    A  writing  under  seal  conveying  the  title  to  personal  property. 
Bond.    A  writing  under  seal  agreeing  to  pay  a  certain  sum  of  money  or  per- 
form a  certain  act. 
Burglary.    The  crime  of  breaking  open  and  entering  the  dwelling  of  another 

with  intent  to  commit  a  felony. 

By-law.    A  rule  or  law  agreed  upon  by  the  members  of  a  society  or  corpora- 
tion for  their  action. 
Caveat.     A  warning  or  caution;   an  instrument  securing  to  an    inventor 

exclusive  rights  to  his  invention  before  the  patent  is  granted. 
Cestuy  que  trust.    The  beneficiary  in  a  trust. 
Chancery.    A  court  of  equity 
Charge.    To  lay  or  impose  a  duty  or  obligation. 
Chattel.    Any  specie  of  personal  property. 
Chose  in  Action.    Any  personal  chattel  of  which  one  has  not  the  possession 

but  a  right  of  action  to  reduce  it  to  possession. 
Chose  in  Possession.    Personal  property  in  possession. 
Civil  Law.    The  Roman  law ;  the  municipal  law. 
Client.    One  who  employs  an  attorney. 
Collateral*    Side  by  side  and  not  in  a  direct  line. 
Common  Law.    Those  customs,  rules  and  decisions  that  in  consequence  of 

long  usage  have  now  come  to  have  the  full  force  and  effect  of  law. 
Consanguinity.    Relationship  by  blood  or  birth. 
Conservator.    A  guardian. 

Consideration.    The  motive ;  the  legal  inducement  to  enter  into  a  contract. 
Contract.    An  agreement  between  two  or  more  competent  persons  based  on 

a  consideration  to  do  or  not  to  do  some  lawful  thing. 
Copyright.    The  exclusive  right  given  an  author  to  his  production. 
Corporation.    An  artificial  person ;  a  body  of  persons  associated  together  by 

law  and  endowed  with  the  power  of  acting  for  some  purposes  as  a  single 

individual. 
Curtesy.    The  life  estate  a  husband  has  in  real  property  of  his  deceased  wife, 

when  there  has  been  a  child  born  capable  of  inheriting  the  same. 
Covenant.    A  mutual  agreement  in  writing. 
Crime.     A  violation  of  law. 
Damages.    A  money  satisfaction  for  an  injury. 
Declaration.    The  plaintiff's  cause  of  action  in  a  suit,  set  forth  in  a  legal 

and  orderly  manner. 

Decree.    The  judgment  or  decision  of  a  court  of  equity. 
Deed.    A  writing,  signed,  sealed  and  delivered. 
De  facto.     In  fact ;  in  reality. 

Defendant. — The  party  against  whom  an  action  is  brought. 
Demise*    The  conveyance  of  real  property. 
Demur.    To  pause ;  to  raise  an  objection. 
Deponent.    One  who  makes  oath  to  a  written  statement. 
Devise.    To  grant  by  will. 

Dishonor.    Refuse  or  neglect  to  accept  or  pay  a  draft. 
Distrain.    To  seize  the  goods  of  a  tenant  for  payment  of  rent. 


238  GLOSSARY. 

Domicile.    The  habitation  of  a  person. 

Draft.    An  order  or  request  drawn  by  one  party  on  another  for  a  certai  a 
sum  of  money. 

Due  Bill.    An  acknowledgment  of  a  debt  in  writing. 

Earnest.    Part  of  the  purchase  price  paid  to  evidence  the  ratification  of  a 
bargain. 

Easement.    A  privilege,  such  as  a  right  of  way. 

Eminent  Domain.    The  right  of  a  sovereign  body  to  take  private  property 

for  public  use. 

Emblement.    Growing  crops  on  land. 

Entailment.    The  act  of  giving  an  estate  and  directing  its  future  descent. 
Equity.     A  system  of  jurisprudence  supplemental  to  law. 
Escrow.     A  deed  or  other  written  instrument  delivered  to  a  third  person  to 

to  be  held  till  some  certain  contingency  happens  and  then  delivered  to 

the  grantee. 

Estate.    The  quantity  of  interest  a  person  has  in  property. 
Estop.    To  bar  or  hinder  by  some  rule  of  law. 

Execution.     That  writ  which  empowers  an  officer  to  execute  a  judicial  sen- 
tence; the  signing,  sealing  and  delivering  of  a  deed. 
Executor.     One  who  is  named  in  a  will  to  execute  its  provisions. 
Ex  post  facto  law.    A  law  which  makes  an  act  done  before  its  passage  a 

crime. 

Fee  Simple.    An  absolute  estate  of  inheritance  free  from  any  conditions. 
Fee  Tail.    An  estate  of  inheritance  descendible  to  a  certain  line  of  heirs. 
Felony.    A  crime  punishable  by  death  or  imprisonment. 
Feme  Sole.     An  unmarried  woman. 
Franchise.     A  right  or  privilege. 
Freehold.    Any  estate  of  inheritance  or  a  life  estate. 
Grant.    To  convey  by  deed. 
Guarantor.    One  who  agrees  to  warrant  the  performance  of  some  act  by 

another. 
Guardian.    One  named  to  have  the  care  and  custody  of  the  person  or  proji- 

erty  of  one  legally  incapable  of  managing  his  own  affairs. 
Heir.    One  who  inherits. 

Heirloom.     Any  chattel  which  by  law  descends  with  land  to  the  heir. 
Hereditament.     Anything  which  may  be  inherited. 
Incorporate.    To  form  into  a  corporation. 

Indorse.     To  put  one's  name  on  the  back  of  an  instrument  with  intent  to 

evidence  a  contract. 
Infant.    A  person  not  of  age. 
Injunction.     A  writ  issued  by  a  court  of  equity  prohibiting  a  person  from 

doing  a  certain  thing. 
Inquest.    A  judicial  inquiry. 
Intestate.    Dying  without  making  a  will. 
Joint  Stock  Company.    A  partnership  partaking  of  some  of  the  features  of 

a  corporation. 
Joint  Tenancy.    That  peculiar  method  by  which  two  or  more  persons  hold 

real  property  in  common  and  on  the  death  of  one  his  share  shall  go  to 

the  survivors. 

Judgment.    Decision  of  a  court. 
Jurisdiction.    The  legal  authority  of  a  court. 


QL08SAKT.  239 

Law  merchant.    A  system  of  rules  deduced  from  the  customs  of  merchants, 

by  which  trade  and  commerce  are  regulated. 

Lease.    The  instrument  by  which  an  estate  for  years  is  conveyed. 
Legacy.    A  gift  of  goods  and  chattels  by  will. 
Lien.    A  right  to  retain  another's  property  until  a  demand  is  satisfied ;  a 

charge  upon  real  or  personal  property. 
Malfeasance.    A  wrongful  act. 
Mandamus.    A  writ  issued  by  a  superior  court  to  an  inferior,  or  an  officer 

commanding  something  to  be  done. 
Misdemeanor.    An  offense  punishable  by  a  fine. 
Mortgage.    A  deed  with  a  clause  of  defeasance ;  a  pledge. 

Negotiability.  That  property  of  certain  contracts  by  virtue  of  which  when 
they  are  transferred  under  certain  conditions,  they  pass  free  and  clear 
of  defenses. 

Notary  Public.  A  public  officer  before  whom  acknowledgments  of  deeds, 
oaths,  etc.,  may  be  taken. 

Ordinance.    A  law  of  a  minor  municipal  corporation. 

Parol.    By  word  of  mouth. 

Parol  Contract.     Any  contract  not  under  seal. 

Plea.  The  formal  allegation  of  fact  which  a  defendant  makes  to  the  plain- 
tiff's declaration. 

Pledge.    Anything  deposited  as  security. 

Politic.    Promoting  good  policy. 

Posthumous.    Born  after  the  death  of  the  father. 

Post  mortem.    Made  after  death. 

Power  of  Attorney.  The  sealed  instrument  by  which  one  appoints  another 
to  act  in  a  given  matter  for  him. 

Primogeniture.  The  right  of  the  eldest  son  to  inherit  his  ancestor's  estate 
to  the  exclusion  of  younger  sons. 

Probate.    To  prove ;  to  prove  a  will. 

Property.    The  exclusive  right  one  has  to  anything. 

Protest.  An  act  by  a  notary  done  for  want  of  payment  of  a  note  or  draft  or 
acceptance  of  a  draft. 

Proxy.    A  substitute. 

Quantum  meruit.    So  much  as  it  deserves. 

Quantum  yalebat.    So  much  as  it  is  worth. 

Quasi.    As  though. 

Quo  Warranto.    By  what  right. 

Real  Estate.  Property  consisting  of  lands  and  all  that  is  permanently 
attached  thereto. 

Realty.    Real  estate. 

Recognizance.    A  bond. 

Recoup.     To  keep  back  part  as  a  claim  for  damages. 

Release.    A  relinquishment  of  some  right ;  a  quit  claim  deed. 

Remainder.    An  estate  to  take  effect  after  another's  estate  is  determined. 

Replevin.    An  action  to  recover  the  possession  of  goods  wrongfully  taken 

and  detained. 
Residuary  Devisee.    The  person  named  in  a  will  to  have  the  balance  or 

remainder  after  all  other  devisees  are  paid. 
Salvage.    A  compensation  for  saving  a  vessel  from  wreck. 


240  GLOSSAEY. 

Scilicit.    To-wit ;  namely ;  abbreviated  in  legal  documents  to  s  s. 

Sentence.     The  judgment  of  the  court  in  a  criminal  case. 

Specialty.    A  contract  under  seal. 

Specific  Performance.    An  action  in  a  court  of  equity  to  compel  a  party  to 

perform  his  contract  in  precise  terms. 
Statute.  A  law  made  by  the  legislature. 
Subpoena.  A  writ  commanding  the  attendance  of  a  person  in  court  under 

penalty. 

Subrogation.    The  substitution  of  another  as  a  creditor. 
Summon.    To  give  notice 

Tenant.    One  who  has  the  temporary  possession  of  the  lands  of  another. 
Tender.    An  offer  of  a  chattel  or  money  in  satisfaction  of  a  debt. 
Tenure.    The  mode  in  which  one  holds  an  estate  in  lands. 
Testament.    A  will. 
Testator.     One  who  dies  leaving  a  will. 
Tort.    A  wrongful  action  for  which  an  action  will  lie. 
Trust  Deed.     A  deed  conveying  real  estate  to  another  to  be  held  in  trust  for 

the  benefit  of  a  third  person. 
Unilateral.    One  sided. 
Usury.    Illegal  interest. 
Vendor.    A  seller. 

Verdict.    The  decision  of  a  jury  reported  to  the  court 

Vested.    Fixed ;  already  in  force ;  not  liable  to  be  set  aside  by  a  contingency. 
Waive.     To  relinquish. 
Warrant.    To  guarantee. 
Waste.    The  destruction  done  or  permitted  to  houses  or  woods  of  an  estate 

by  the  tenant  thereof. 
Will.    An  instrument  by  which  a  person  disposes  of  his  property  to  take 

effect  after  his  death. 


MARRIED   WOMEN. 


•MM 

May  a  married  woman  become  a  sole  trader,  and 
can  she  be  held  in  an  .action  at  law  for  an  indebted- 
ness contracted  while  carrying  on  business  in  her 
own  name  the  same  as  if  she  were  singlet 

Can  an  agreement  in  a  note 
to  pay  attorneys'  fees,  in  case 
of  default  of  payment  at  ma- 
turity, be  enforced! 

Does  such  an  agreement 
void   the  negotiability  of 
the  note! 

Ala  
Arts 

Yes,  bnt  must  have  husband's  consent  before  sne  can 
convey  or  mortgage  her  real  property  or  waive  home- 
stead. 
Yes                             

Yes  

No. 

Question  unsettled. 
No. 
Yes. 

No  statute  or  decision  on 
this  subject 
No. 

N». 

Yes. 
Questionable. 
No.  ' 

Questionable. 
No,  if    amount   of    fee  ll 
fixed. 

No. 
No. 

No. 
No. 

No. 

No. 

No. 

Yes. 
Yts. 

Tea. 

No. 

Yes. 
No. 

No. 

No. 
Questionable. 

No  statute  or  decision  on 
this  subject. 

Question  unsettled.  Proba- 

Questionable.           fbly  no. 
No. 

No. 
No. 

No. 
No. 
If  agreement!)  conditlonalduch 
as  agreement  to  pay  feel  in  de- 
fault of  payment  at  maturity) 
note  it  non-negotiable 
Yes,  unless  the  terms  are 
absolute  and  not  condi- 
tioned on  default. 
No. 
No. 

No,  if  the  agreement  is  to 
pay  a  specified  sum;  oth- 
erwise  it   becomes  non- 
negotiable. 
No. 
Question  unsettled. 
No. 
No. 

Question  unsettled 

No. 
No. 

Yes. 
No. 

Yes.... 

Ark 

Yes    .              

No.... 

CM  
Colo  ... 

Yes,  provided  she  obtains  from  the  Superior  Court  a 
permit. 
Yes  :  

Yes  

No  statute  or  decision  on  this 
subject. 
Yes  

Conn... 

Del  
D  0.... 

Yes,  provided  that,  if  she  was  married  before  1877,  she 
takes  advantage  of  the  Statutes  of  1888,  Section  2792. 

Yes  !!"'.'."".'"!"""""".'""""!"".."  

Yes,  if  snm  is  certain  
Yes  

Fla  
Ga  

Idaho.. 
IU  

Ind.... 
Ind.Ty. 

Yes  

Yes!  but  she  cannot  bind  herself  by  any  contract  of 
suretyship,  and  cannot  be  held  liable  for  the  debt  of 
her  husband. 
Yes,  provided  she  is  declared  a  sole  trader  by  aDist.Ct. 
Yes.  bat  she  cannot  go  into  partnership  without  her 
husband's  consent. 

Yes,  but  she  cannot  become  surety  for  any  one,  nor  can 
mortgage  or  convey  real  estate,  without  her  husband 
joining  in  the  conveyance. 
Yes                                        

No,  unless  defendant  should  file 
a  plea  which  is  not  sustained  . 

Yes  

Yes,  if  fees  are  fixed  and  cer- 
tain, and  by  terms  of  note 
become  due  when  note,  after 
maturity,  is  placed  in  hands 
of  attorney  for  collection. 
Yes,  if  unconditional  

No  

Yes  

Yes,  provided     attorney    flies 
statutory  affidavit    at   com- 
mencement of  suit. 
No  , 

Yes  

Ky  

Yes  

No.     Enforeible    if    valid    in 
State  where  made. 
Yes  

La.  ...  . 
Maine 

Yes,  if  she  Is  a  public  merchant,  and  she  is  so  consid- 
ered U  she  carries  on  a  separate  trade. 
Yes           

No  

Md  

Mass... 
Mich... 

Minn... 

Miss... 
Mo  

It  is  unsafe  to  credit  a  married  woman  in  this  State, 
unless  she  has  a  trader's  license,  or  unless  she  has 
property  acquired  by  her  own  labor  and  skill,  and 
contracts  in  reference  to  it. 
Yes.    She  must  file  a  married  woman's  certificate  
Yes,  but  she  cannot  become  surety  for  nor  form  a  part- 
nership with  her  husband. 
Yes,  but  she  cannot  transfer  any  interest  in  real  estate, 
unless  her  husband  joins  in  the  conveyance. 
A  married  woman  has  all  the  rights  of  a  femme  sole.. 
Yes  

Yes  w.... 

No  

Yes  

Yes  
Yes  

Mont... 
Neb.... 

Yes,  has  all  the  rights  and  liabilities  of  a  femme  sole 
under  certain  conditions. 
Yes  

Yes  .-.  

No  

Nov.... 

Yes  

N.H... 
N.J.... 

N.M... 

Yes,  but  she  cannot  become  surety  for  her  husband  

Yes,  but  she*  cannot  become  surety  for  her  husband,  or 
an  accommodation  endorser,  guarantor  or  surety,  or 
liable  on  any  promise  to  pay  the  debt  or  answer  for 
the  default  of  another,  unless,  on  the  faith  of  it.  she 
obtains  money,  property,  or  things  of  value  for  her 
own  use. 
Yes  

No  statute  or  decision  on  this 
subject. 
Question  unsettled.    Probably 

Yes  

N.C.... 
N.D.... 

Yes.  provided  she  enters  herself  as  a  "  free  trader  "  in 
office  of  Registrar  of  Deeds. 
Yes  

No  

Yes.  .  .  . 

Ohio... 

Yes  , 

No  

Okla... 

Yes  

Yes        .  . 

Ore.... 

Yes  .'  

See  note  A 

P»  
R.I.... 

Yes.... 

YM  

Yes  

8.C.... 
S.D.... 

Yes,  and  she  may  become  surety,  guarantor  or  partner. 
Yes.... 

No 

Tenn... 

Yes  

No.  unless  note  is  dated  prior 
to  March  7,  1889. 
Yes  

Tezai.. 
Utah... 

She  may  be  a  merchant,  but  must  use  her  separate 
property.    She  cannot  carry  on  a  partnership  busi- 
ness, and  cannot  buy  on  credit.    Her  profits  become 
liable  for  her  husband's  debt* 
Yes  

Yes 

Vt  
Va  

Yes,  bnt  she  cannot  become  surety  for  her  husband  .... 
Yes  

Question  unsettled  

Wash.. 
W.Vm.. 

Wls.... 
Wyo.  .. 

Yes,  bnt  she  cannot  become  a  partner  in  trade  with  her 
husband. 
Yes,  but  the  judgment  can  only  be  satisfied  out  of 
property,  real  or  personal,  belonging  to  her  separate 
estate  

Yes  /  

Yes,  subject    to    approval   of 
court. 
Yes.  bnt  not  if  the  agreement  is 
in  the  nature  of  a  penalty  of 
forfeiture. 
Yes  

She  can  carry  on  business  in  her  own  name  with  capi- 
tal which  is  her  separate  property,  also  when  her 
husband  has  deserted  or  refused  to  support  her.  ... 

f«t  

Yes.... 

4~T**<  "  agreement  is  to  pay  "such  reasonable  attorneys'  fee*  as  the  eonrt  may  adjudge.  U  action  Is  Instituted."  DM 
n<"  IT  a  specific  snm  or  per  cent  is  mentioned. 

EXEMPTIONS. 


2.So 
•o«S 


3TS 

J3  «•»  ® 

•S-8 

—  g  » 


3*1 


It* 

Its 

o-i 

*-oS 

.**  a  K 


S'Sg 

iJ?S" 


a"  CJ 
-g*. 

mi 

^  &  c  i 


«v  C  «  M 

"  °  v-S-2 
ii  *C.  p 
^s=oE 

SMll 

S»  "£  8 


the 
or 
to 


AT 
FRA 


S  1  I 

I  i  : 

I  s  I 

0  Q  ft* 

*-•  •»  o 

9  I  e 

•ShS  « 


& 

3   i 
I  J 

I   I 

LI 


I 

.2 


I  1 

S  8 

I  s 

S  2 


^0* 

Mn  « 

4>^>  fc* 


a      « 

1     -" 


.       T3  Jl      -O 


H  IS     g 


I  IF  ' 

&  <§ 


§3 


a  IS  §  2 


:       S  :  •  • 

:2  i;;; 


li-S: 

tili 


ls|||  : 

:  c«? "     « 


:|? 

:Si 

:s 

•*=> 


irf 

:fl^  ? 

:  8  o  ^ 
1  =  —  a 


11 

tt 

!•! 

£  S 
sa 

SB' 
05 


I«l 

sS&g 


8    88 
i    SS5 


5  ° 
w-3 


a 

28     II 


3^  •*: 


••Col      86^ 

:  :-*-s:  -- 


:  :  g  .£?>•-• 

•      .    P    O    g    U^^ 


;s  & 


.- 


•.= 

iBIii 

°* 


a'C      o'^*-1 
-»».« 


s  ? 

Sb 
c 

»»   < 


us 


I  si 

o  .o  3 
••3*2 


it  I  Its 

il  cf 


88    8 
SS    ? 


•cS 
B-a 


•0 


~   o 
i  i 


EXEMPTIONS. 


243 


244 


ASSIGNMENTS. 


States 


How  Soon  after  Assignment  must  claim  be  presented  to 
Assignee- in  order  to  participate  in  the  estate? 


Does  Participation  In  Distribution  of  Assets  necessa- 
rily Release  the  Debtor? 


Ala.... 
Ariz... 


Ark.... 


Cal.... 
Colo... 


Conn . . 


Del.... 
D.C.... 

Fla.... 

Oa 

Idaho., 

m 

Ind.... 
Ind.Ty 

Iowa. . , 
Kan..., 

Ky 

La.... 
Me.... 

Md.... 


Mich. 
Minn 


Miss.. 
Mo.... 


Mon .. 
Neb... 


N.H... 


N.J.. 
N.M 


Within  a  reasonable  time.  Later  than  six  months  would 
be  unreasonable. 

Any  time  before  estate  is  closed,  unless  assignment  provides 
for  discharge  of  debtor,  in  which  case  creditor  must  elect 
before  four  months,  and  must  within  six  file  particulars 
of  his  claim.  If  assignee  has  made  a  distribution  before 
claim  is  filed,  the  tardy  creditor  does  not  share  in  it. 

Any  time  before  estate  is  closed.  If  assignment  provides  for 
release  of  debtor,  it  must  specify  a  time  in  which  credit- 
ors are  to  accept. 

Thirty  days  after  notice  from  assignee 

Assiguee  must  cloSe  the  trust  in  one  year,  unless  time  is  ex 
tended  by  court;  claims  filed  within  first  three  months 
have  priority. 

From  three  to  six  months 


Any  time  before  estate  is  closed 

Anytime  before  estate  is  closed 

By  non-residents  four  months,  by  residents  sixty  days,  from 
time  of  publication  of  assignee's  notice. 

Any  time  before  estate  is  closed 

On  the  day  fixed  by  Court,  notice  of  which  is  sent  to  cred- 
itors. 

Within  three  months  of  date  of  notice  by  assignee 

Any  time  before  estate  is  closed,  but  trustee  must  make 
final  report' at  expiration  of  one  year. 

Any  time  before  assignee  makes  final  settlement,  unless 
deed  of  assignment  provides  otherwise. 

Within  three  months  of  date  of  public  notice  by  assignee.. 

On  dat«  fixed  byassignee.whicb  must  be  within  six  months 
after  date  of  assignment. 

Anytime  before  estate  is  closed,  but  should  be  filed  prompt- 
ly to  share  in  all  distributions. 

Any  time  before  assignee  or  syndic  files  his  final  account. . . 

Any  time  before  final  dividend  is  declared  but  creditors 
will  not  participate  in  prior  dividends. 

On  the  date  fixed  by  the  trustee  in  his  public  notice  tc 
creditors. 

In  accordance  with  the  terms  of  the  assignment 


Within  ninety  days  from  date  of  notice 

Claims  may  be  filed  until  time  limited  by  order  of  court, 
after  which  time  they  may  only  be  filed  by  special  per- 
mission of  Court. 

Any  time  before  estate  is  closed 

On  one  of  three  days  fixed  1);  assignee,  notice  of  which 
must  be  sent  to  all  known  creditors. 

Any  timftefore  estate  Is  closed 

Jlaims  must  be  filed  In  County  Court  on  or  before  the  day 
fixed  by  the  Court.wbich  shall  not  be  less  than  thirty  days 
nor  more  then  sixty  days  after  the  selection  of  an  as 
signee  by  the  creditors. 

On  or  before  such  time  as  the  Court  may  fix  for  the  first 
meeting  of  creditors. 


Within  two  months  from  beginning  of  insolvency  pro 
ceedings.  Claims  may  be  filed  later,  but  do  not  partici- 
pate in  prior  dividends;  but  in  any  subsequent  dividend 
the  claim,  if  allowed,  shall  be  a  preferred  claim  for 
dividends  equal  to  previous  ones. 

before  advertised  date,  not  less  than  three  months  after 
assignment.  Claims  may  be  filed  later,  but  do  not  par- 
ticipate in  prior  dividends. 

date  published  by  assignee,  notice  of  which  must  be 
Sent  to  known  creditors. 


No. 

Yes,  provided  assignment  is  made  with  that  condition. 


Yes,  provided  assignment  Is  made  wlthlthat  condition. 


No.  except  by  agreement  of  creditor*. 
Yes. 


If  creditors  receive  70*  of  claims  allowed,  court  may  dis- 
charge debtor  from  all  claims  proven,  and  may  exempt 
his  property  for  two  years  from  any  process  on  claims 

No.  which  might  have  been  proven. 

No,  unless  assignment  Is  accepted  with  that  condition. 

No. 

No. 
Yes. 

No. 
No. 

No,  unless  the  deed  of  assignment  10  provides. 

No. 
No. 


Yes.* 
Yes- 
No,  unless  discharged  by  Insolvent  Court,  which  doM 
not  bind    non-resident  creditor!  unless  ithejr  accept 
the  jurisdiction. 

Assignments  for  benefit  of  creditors  are  usually  voided 
by  Insolvency  proceedings.    In  the  latter,  proofs  must 
be  made  out  on  blanks  furnished  by  Court  and  pre- 
sented at  one  of  the  regular  meetings  called  for  that 
purpose.   If  a  debtor  receives  his  discharge  all  debts 
due  to  residents  are  subsequently  barred,  al- 
No.  so  those  due  non-residents  which  were  not 

proved. 

Assignments  may  be  made  under  the  assignment  law 
or  under  the  insolvency  law.  Creditors  par- 
ticipating in  either  of  these  proceedings  may 
No.  bave  to  release  the  debtor  from  all  further 

No.  claims  after  participation  in  distribution  of 

assets. 
No. 
No. 


Yes,  it  the  cash  value  of  debtor's  surrendered  property 
amounts  to  at  least  50*  of  bis  liabilities,  or  if  three- 
fourths  in  number  and  one-half  in  amount  of  his  cred- 
itors consent  in  writing  to  his  discharge. 

Yes,  if  the  assets  are  sufficient  to  pay  preferred  claims 
and  SO*  on  all  other  claims,  or  if  two  thirds  in  number 

thirds  in  value  of  the   debts  consent   in  writing  to 
accept  a  less  per  cent. 

Yes. if  creditors  present  claims:  r  ,t  bound  to  present 
claims,  however. 

No. 


'Assignments  by  that  name  do  not  exist  In  this  State.  An  insolvent  debtor  makes  a  surrender  of  his  property.  A 
meeting  of  creditors  is  called  for  a  particular  day,  before  a  designated  notary,  and  the  creditors  vote  for  a  syndic  who  has 
charge  of  trie  debtor's  estate.  Such  surrendering  debtor  is  discharged  from  further  liability  to  all  those  creditors  placed 
by  him  on  bis  schedule  of  assets  and  liabilities,  filed  by  him  at  the  time  of  making  the  surrender,  provided  he  is  dis- 
charged by  a  majority  of  his  creditors  in  number  and  amount.  If  the  surrender  be  not  made  into  Court,  the  question  of 
discharge  or  no  discharge  becomes  a  mere  matter  of  contract,  those  creditors  only  who  bave  consented  to  a  discharge 
being  bound  thereby. 


ASSIGNMENTS  CONTINUED. 


245 


States 

How  Soon  after  Assignment  mnst  claim  be  presented  to 
Assignee  in  order  to  participate  in  the  estate! 

Does  Participation  in  Distribution  of  Assets  necessa- 
rily Release  the  Debtor! 

N.Y.... 
N.C.... 

N.D.... 
Ohio... 

Ok.... 

Anytime  before  distribution  of  estate  

No. 

No. 

Yes. 
No. 

No. 

No,  unless  the  estate  pays  50*  and  all  expenses,  aa 
assignment  is  free  from  fraud. 
No. 
Yes.    Creditors  residing  without  the  State  mnst  file  a 
stipulation  agreeing  to  be  bound  by  oar  laws  and  by 
any  discharge,  order  or  decree  made  by  the  proper 
Conrt. 
An  assignment  usually  provides  for  two  classes  of 
creditors.t 

No. 
No. 
Yes.  if  the  assignment  is  made  with  condition  of  re- 
lease, and  provided  creditors  get  33/6*.    * 

No. 

Yes,  provided  the  assets  show  a  value  eqnal  to  30*  of 
claims  proved,  or  provided  the  majority  in  amount 
and  number  of  creditors  consent  in  writing  to  dis- 
charge. 
Yes,  provided  assignment  is  made  with  that  condition. 

Yes. 

No. 

Yes. 
Yes. 

Any  tune  before  estate  is  closed,  bat  non-filing  before  day 
fixed  by  assignee  may  deprive  claimant  of  fall  pro  rata 
of  assets 

Within  six  months  after  publication  of  notice  by  assignee. 
Claims  filed  after  that  share  in  undistributed  proceeds. 
If  rejected,  suit  must  be  brought  in  thirty  days. 

Ore.... 

Pa  
R.I  

8.O...  . 

8.D.... 
Tenn... 
Texas.. 

Utah... 
Vt  

Vt,  

Wash.. 

W.Va.. 

Wig.... 
Wyo  .  .  . 

Within  three  months  after  receipt  of  notice  from  assignee.  . 
Any  time  before  estate  is  closed  

Any  time  before  settlement  of  the  estate  by  the  assignee.  . 

Within  time  limited  in  the  assignment,  or,  where  no  time 
is  limited,  any  time  before  the  assets  are  all  divided 
among  creditors. 
Any  time  before  estate  Is  closed  

Notice  of  acceptance  must  be  sent  assignee  within  four 
months,  and  claims  filed  within  six  months  from  time  of 
publication  of  notice  of  assignment. 
Within  three  months  from  date  of  publication  of  notice 
by  assignee. 
At  any  meeting  of  creditors  within  six.  months  after  pro- 
ceedings %re  instituted,  which  meetings  are  called  at  the 
discretion  of  Coort. 

Anytime  before  estate  is  closed,  unless  the  deed  of  assign- 
ment prescribes  a  time  at  which  it  must  be  done. 
Within  three  months  from  date  of  publication  of  notice. 
Claims  may  be  filed  subsequently,  but  do  not  participate 
in  dividends  until  payment  in  full  of  all  claims  presented 
within  three  months. 
Any  time  before  estate  is  closed,  unless  trust  deed  provides 
otherwise  . 
Within  three  months  from  execution  of  deed  of  assignment.. 
Within  •>  months  after  first  publication  of  notice  by  assignee 

t  First,  those  who  accept  thn  terms  within  a  limited  time  and  execute  releases  to  the  debtor;  second,  all  other  creditor*, 
i'he  assigned  property  is  Brst  applied  to  the  payment  ot  claims  of  the  first  class:  the  balance,  if  any,  to  payment  of  claims  of 
t  je  second  class.    The  debtor  lit  released  from  debts  of  creditors  of  the  first  class,  bat  not  from  those  of  the  second  class. 

ATTACHMENTS. 


State 

Do  attachment  creditors 
take  pro  rata,  or  have  they 
priority  in  the  order  of  their 
attachments? 

When  statutory  grounds 
of  attachment  exist,  is  at- 
tachment allowed  whether 
claim  is  due  or  not! 

Is  bond  required,  and  in  what  amount! 

Ala.... 
Ariz... 

Ark.... 

Cal  .... 

Colo... 

Conn.  .  . 
Del.... 

D.C.... 
FU  

Priority  
Priority  

Priority  
Priority  

AH  claims.  sued  on  within  30 
days(20  days  before  J.  P.)  after 
attachment  suit,  prorate. 
Priority  —  . 
In   attachments   against   resi- 
dents of  the  State,  creditors 
prorate.   They  have  priority, 
however.against  non-residnts 
Priority  
Priority  

Yes  

Allowed  only  when  claim  is  due 
and  made  or  payable  in  Ariz. 
Yes  

Attachment  allowed  only  when 
claim  is   due,  and   provided 
contract  is  (in  cases  against 
residents)  made  or  expressly 
payable  in  this  State. 
Yes.  but  fraud  must  be  alleged 
when  claim  not  due. 

Yes  
No  

No  

Yes,  in  doable  amount  of  claim  sued  on. 
Yes,  in  amount  not  less  than  debt  sworn  to. 

Yes,  bond  required  to  the  effect  that  the  plaintiff 
shall  pay  defendant  all  damages  he  may  sustain 
if  the  attachment  is  wrongfully  brought. 
Yes,  not  less  than  '$50.00  or  more  than  $300.00  in 
Justice  Court,  and  not  less  than  $200.00  in  Supe- 
rior Conrt,  nor  more  than  the  amount  claimed  by 
the  plaintiff. 

Yes,  in  doable  the  amount  of  the  claim. 

No  bond  required,  except  non-resident  plaintiff 
No  bond  required.              [most  furnish  cost  bond. 

Bond  required  in  double  amount  of  claim. 
Bond  required  in  double  amount  of  claim. 

Ga  

Idaho.. 

Ill  

Ind  .... 

Priority  
Prorate  

Prorate  In  all  suits  returnable 
to  the  same  term  of  court 
Prorate    

due  in  nine  months. 
Yes,  except  when  attachment  is 
on  ground  of  non-residence. 
No  

No  
Ye»  

Bond  required  in  double  amount  of  claim. 

Bond  required  in  the  sum  of  $200.00.  or  not  to  ex- 
ceed the  amount  of  claim  in  District  Conrt:  In 
Justice  Conrt.  $50.00. 
Bond  required  in  doable  amount  of  claim. 

Bond  required  to  the  effect  that  plaintiff  will  pay 

Ind  Ty 

Priority 

Yes    

defendant  all  damages  he  maxsustain  if  proceed- 
ing is  wrongful  and  oppressive. 
Bond  required  providing  for  payment  of  all  dam- 

Iowa. .  . 
Kan... 

Priority  
Priority  

Ye«  

Yes.  bat  if  claim  is  not  due,  an 

ages  which  may  accrue. 
Bond  required  in  three  times  the  amount  of  the 
claim,  and  not  less  than  $50  in  Justice  Court 
nor  $250  in  Court  of  Record. 
Bond  required  in  double  amount  of  claim,  except 

£•:::: 

Priority  

Priority.  .  .  . 

order  of  Conrt  must  first  be  ob- 
tained upon  proper  showing.  . 
Yes  
Yea... 

that  in  cases  against  non-residents  no  bond  is  re- 
quired. 
Bond  required  in  double  the  amount  of  the  claim. 
Bond  required  equal  to  the  amount  of  claim. 

246 


ATTACHMENTS   CONTINUED. 


State 

Do  attachment  creditors 
take  pro  rata.  or  have  they 
priority  in  the  order  of  their 
attachments! 

When  statutory  grounds 
of  attachment  exist,  is  at- 
tachment allowed  whether 
claim  is  due  or  not) 

Is  bond  required,  and  in  what  amount! 

Maine.. 

See  Note  A  

No  

Md  

Mass... 

Priority  
Priority  ;  

Yes,  in  cases  of  fraud  or  ab- 
sconding. 

No  .     ... 

only  on  attachment  of  personal  property  when 
officer  demands  indemnity,  and  then  usually  in 
double  amount  of  claim. 
Bond  required  in  case  of  resident,  but  In  case  of 
absconding  or  non-resident  deblors.no  bond  re- 
quired. 

Mich... 

Minn  .  . 
Miss... 

Priority  ^  

Priority.    See  Note  B.^  ..... 
Priority  

Yes,  but  if  claim  is  not  due,  an 
order  of  Court  must  first  be 
obtained  by  proper  showing. 

No,  except  for  fraud  

No  bond  required  in  Circuit  Court,    Bond  required 
for  double  amount  of  claim  in  Justice  Court. 
Officers  may  demand  indemnity,  when  ownership 
of  property  attached  is  in  doubt. 
Bond  required  in  amount  not  less  than  than  $250.00 
in  all  cases  in  the  District  Court. 

Mo  

Mont  .  . 
Neb.... 

Nov.... 
N.H.... 

Priority  

Priority,  except  where  levied  to- 
gether, when  they  prorate. 

Priority,  except  when  received 
at  the  same  time  by  the  sher- 
iff, when  they  prorate. 

Priority  
Priority  

be  one  of  the  last  six  provided 
by  statute,  or  when  debtor  is 
about  to  or  has  removed  self 
or  property  out  of  the  State 
with  fraudulent  intent. 
Yes,  except  when  ground  of  at- 
tachment   is    non-residence, 
when  claim  must  be  due. 
Yes.under  contingencies  named 
in  statute. 

Yes,  in  case  of  f  raua  
No  

Bond  required  in  double  amount  of  claim. 

Bond  required  in  double  amount  of  claim,  but,  if 
claim  is  over  $1.000,  need  only  be  for  amount  of 
claim.    In  no  case  need  it  exceed  $10.000. 
Bond  required  in  double  amount  of  claim,  except 
where  debtor  is  a  foreign  corporation  or  a  non- 
resident, !n  which  cases  no  bond  is  required,  un- 
less debt  not  due,  in  which  event  bond  required. 
Bond  required  in  amount  not  less  than  $200,  and 
not  exceeding  amount  of  claim. 

N.J.... 
N.M... 

First  attachment  has  priority; 
subsequent  attachments  pro- 
rate. 

Priority  

No,  but  other  creditors  whose 
claims  are  not  due.'may  come 
in  under  attachment  already 
issued.. 
Yes  

residents  must  be  endorsed  by  some  responsible 
inhabitant  of  the  State  for  costs. 
No  bond  required. 

N.Y.... 

Priority  

N.C.... 

N  Dak 

Priority  

cured  by  fraud.  The  creditor 
is  entitled  to  rescind  the  sale. 
No;  claim  must  be  due. 

Yes    

Bond  required  in  the  sum  of  not  less  than  $200.00; 
amount  is  fixed  by  Court. 

Ohio... 
Okla... 
Ore.... 

Priority  
Priority  
Priority  

Yes,  in  cases  of  fraud,  by  al- 
lowance of  court. 

Yes,  by  allowance  of  Judge  on 
proper  showing. 

less  than  $250,  except  in  Justice  Court,  $50. 
Bond  required  in  double  amount  of  claim,  except 
when  debtor  is  a  non-resident  or  foreign  corpora- 
tion, in  which  case  no  bond  required. 
Bond  required  in  double  the  amount  of  claim.    N« 
bond  required  when  defendant  is  a  foreign  corpo- 
ration or  a  non-resident. 

Pa  

case  less  than  $100.00. 

R.I.... 

S.C... 
S.Dak 

ment  made  within  60   days 
dissolves  all  attachments. 
Priority,  but  if  an  attachment 
is  allowed  to  remain  over  61 
days,  a   debtor  may  be  ad 
Judged  insolvent. 

Yes,  when   attachment  issued 
for  fraud. 

Yes  

demnity  when  ownership  of  property  is  uncer-' 
tain. 
Bond  required,  at  least  $250.00  in  Court  of  Common 
Pleas,  and  $25.00  in  Justice  Court. 

Bond  required  in  at  least  amount  of  claim  specified 

Priority  

in  affidavit,  and  in  no  case  less  than  $250.00  in 
Circuit  Court. 

Priority  

tachment    is    non-residence 
then  claim  must  be  due. 
Yes  

Bond  required  in  double  amount  of  claim. 

Utah  . 

Priority  

Bond  required  in  amount  of  claim. 

Vt.  ... 

Va.... 

Wash. 

Priority  

Priority  
Priority.  

the  debtor  is  about  to  leave 
the  Territory. 
No,  except  in  case  of  a  running 
account  where  part  is  due 
then  attachment  may  be  hat 
for  whole  amount. 
No.  except  against  non-residents 
or    persons   removing  their 
.    property  beyond  the  State. 
Yes  

No  bond  required,  except  for  costs. 

Bond  required  in  double  amount  of  claim. 
Bond  required  in  double  amount  of  claim. 

W.Va. 

Priority  

Yes         

Wig.  .  . 

Yes  

required  when  levy  is  on  real  estate. 
When  claim  is  due,  bond  required  in  the  sum  of  not 

Wyo.. 

No  :  however,  in  Justice  Court 
creditors  take  pro  rata  before 

Yes  

less  than  $250.00;  when  not  due.  in  three  times 
the  amount  of  the  claim. 

A— Priority .  unless  insolvency  proceedings  Intervene,  and  an  assignee  is  appointed,  when  attachments  made  within  four 
months  of  the  commencement  of  insolvency  proceedings  are  vacated. 

B— In  Minnesota.attachments  are  set  aside  by  assignments, so  that  the  priority  of  an  attachment  usually  amounts  to  nothing. 

O— Domestic  attachments  (nearly  obsolete)  inure  to  benefit  of  all  creditors  pro  rata;  foreign  attachments  have  priority 
from  time  of  levy,  and  attachments  against  fraudulent  debtors  from  time  when  placed  in  sheriff's  haada. 


CHATTEL   MORTGAGES. 


247 


State* 

Host  the  mortgage  be  renewed,  and  whenl 

_    Are  they  valid  as  to  third  parties 
on  the  stock  of  merchandise  remain- 
ing in  possession  of  and  under  con- 
trol of  mortgagor! 

Are  they  valid  (as  to  third 
parties)  on  after  acquired 
property? 

Ala... 

No  

1 
No  , 

No. 
No. 
No. 
No. 
Yes.tfbona&dB. 
No. 
No. 
No. 
Questionable. 
Questionable. 
No. 

No. 
Doubtful. 
Doubtful 

Yes. 
Doubtful. 

No. 
Chattel  mortgages  are  un 
known  in  this  State. 
No./  See  Note  B. 
Probably,     if      mortgagee 
takes   possession    before 
No.                rights  of  thud 
Yes.              parties  attach. 
Yes,  If  mortgage  so  recites. 

Yes. 
Not  as  against  execution  or 
attachment  creditors  who 
secure  a  lien  before  mort- 
gagee takes  possession. 
Doubtful. 

No. 

Undecided. 
No. 

Yes.  if  so  drawn 
Doubtful. 

No. 

No. 

Yes. 

>s.  unless  it   appears  IB 
ibe  mortgage    ibat    the 
merchandise  if  to  be  sold 
and  nrorfedi  apobed  for 
benefit  ol  mortgagor. 
No. 
No. 

No 

N'ot  as  against   attaching 
creditors  who  may  secure 
'e*.           ben  before  mort 
Ves.          gagee    gets   pos- 
session. 

No 

Ariz.. 
Ark... 

Cal 

No  

No  

No  '  *"* 

Same  as  Kansas..............  .... 
No          , 

Colo... 
Count 
Del... 
D.O.... 

No  

No  

No  , 

Ye«  

No  

Kla  

No  

No  

G»  

No  

Yes  

Idaho.. 

No,  unless  proceeds  of  sale  go  to  mort 
gagee. 
No  

01.  .. 

See  note  A  

Ind  

No  

Yes  

Ind.fy 

If  reeorded.no  renewal  necessary;  if  filed,  then 
thirty  days  before  expiration  of  one  year  there 
most  be  filed  an  affidavit  of  non-payment,  to 
be  of  notice  to  third  parties. 
No  

Yes.  but  mortgagor  mpst  act  as  agen 
fer  mortgagee. 

Yes  

Kan.... 

£:::: 

Maine., 
lid  

yes.  within  30  days  preceding  the  expiration  o: 
one  year,  and  each  Year  thereafter. 
No  ;  good  for  l.i  r»ri  if  note  ii  given  .  no  note  J  y«ari 
Cnattel  mortgages  are  unknown'  in  this  State 
and  nothing  takes  their  place. 
No  _  

Y^es.  if  mortgagor  acts  38   agent  o 
mortgagee  whem  sales  are  made. 
Yes.  if  goods  can  be  identified. 
Chattel  mortgages  unknown   In  this 
State,  and  nothing  takes  their  place. 
Yes  

Mo  

Doubtful  

Mara... 

No  ,  

Yes,  on  the  original  goods  remaining. 
Yes  

Mich... 

Minn... 

Miss... 

So;    bnt  as  against  creditors  and   subsequent 
purchasers,  life  of  mortgage  is  6  years. 
No  

No  
No  

Mo 

No           

No.  unless  the  proceeds  of  sales  go  to 
the  mortgagee  in  reduction  of  mort- 
gage debt. 

Yes,  if  made  in  good  faith,  and  proceeds 
of  sales  to  go  to  mortgagee. 

No  

Mont... 

Neb.... 

Ne*.... 

N  H... 

Must  be  renewed  at  or  before  maturity    can  only 
be  drawn  for  one  year,  but  may  be  renewed 
once. 

years  from  date  of  its  filing. 
A  mortgage  in  Nevada  is  good  for  six  years  from 
date  of  maturity  of  debt  secured. 
No  

Yes  

No.  unless  the  proceeds  of  sale  go  to 
the  mortgagee   in  reduction  of   the 
mortgage  debt. 

N  J  .. 

No  .•  

N.M... 
N.Y.... 

NC.... 

Annually. 

Tes.  every  year,  by  re-filing  within  30  days  be- 
fore expiration. 

No  

to  

vo.  unless  mortgage  provides  that  mort 
gagor  isin  possession  as  agent  of  roort 
gagee,  and  sales  to  be  for  cash  and  to 
be  applied  in  reduction  of  mortg.  debt 
•io.  unless  mortgage  r  has  possession  as 
mortgagee's  agent,  n  ml  proceeds  go  to 
reduction  of  mortgage  debt, 
fes.  if  mortgagor  is  reo  n  m-d  to  account 
to  mortgagee  for  proceeds  for  sales, 
{o.  unless  mortgagee  lakes  possession 
before  third  party  makes  levy,  or  un 
less  mortgagor  is  made  in  the  mon 
gage  agent  for  mortgagee.  and  required 
to  account  to  mortgagor  lor  all  ..ales. 

N.D.... 
Ohio... 

OUa... 
Ore.... 

Pa.  .... 
R  1 

Withic  90  days  next  preceding  the  expiration  of 
three  years  from  date  of  filing. 
fes,  annually,  and  within  30  days  preceding  the 
end  of  the  year. 

res.  within  30  days  next  preceding  expir  of  3  yn>. 
'os.  wilbiD  30  days  preceding  the  expiration  of 
each  year.    If  executed  and  acknowledged  as  a 
real  mort  .  and  recorded,  no  renewal  required. 
'es.  wi'hln  three  months  after  maturity  

No            

No  

Chattel  mortgages  are  only  authorized 
on  certain  articles  specified  in  act  of 
May  20.  1891. 

S  C 

S'o     

S.D.... 
TBDTJ... 

Ves.  within  30  days  next  preceding  expiration  of 
limit,  which  is  three  years  from  dat«  of  filing 
It  can  be  renewed  for  three  years  longer. 
1o  

res.  provided  mortgagor  is  reonirvd  to 
account  •?  mortgagee  for  proceeds  of 
sales. 

No  .     ...  I 

'  A — Chattel  mortgage*  must  be  acknowledged  before  a  Justice  of  Ibe  Peace  in  the  township  in  whieh  the  mortgagor  re- 
side*, and  must  be  recorded  with  the  Recorder  of  Deed*  of  the>  covnty  where  ibe  mortgagor  revile-.,  etrepl  thai  oon-  re«Ideni 
mortgagors  may  acknowledge  chattel  mortgages  before  any  officer,  authorized  by  law  to  take  arnjow lodgments  of  deeds,  and 
In  (he  ease  of  the  mortgagor  being  a  non-resident  i  be  mortgage  may  De  recorded  in  Ibe  wuniy  "here  tin*  property  u  situated. 
Notes  secured  by  chattel  mortgage  must  stale  upon  then  face  th«l  they  are  »o  snrured.  otherwise  toe  r baitH  mortgage  «e- 
curing  the  note  is  absolutely  »oid.  A  chattel  mortgage  I?  not  good  <m  •  period  to  eirxed  »«<>  ve»r».  miles*  within  thtrij  day» 
next  preceding  the  maturity  of  the  obligation  ao  sflid»vit  m  madv  bv  ooib  ihe  mnneaeot  and  mortgagee  ^bowiug  the  amount 
remaining  due  upon  the  note*  necured  by  the  mortgage  which  affidavit  shall  tx>  61«d  for  n«rnr<j  10  i  be  oftw  oj  tb»  Recorder 
of  Deeds  where  the  original  mortgage  is  recorded,  and  also  with  Ibe  JOS.QTB  of  tot  Pear*  hefore  whom  the  original  mortgage 
was  acknowledged  The  affidavit  shall  also  snow  the  extension  that  it.  granted  wturft  must  not  exceed  'wo  years  from  ibe 
date  of  the  filing  of  the  affidavit  Chattel  mortgagee  on  household  good*  must  r*  foreclosed  la  »  court  of  reeora  Husband 
and  wife  mnr:  loin  a*  to  household  goods 

B— No.  oui  fooaa  purchased  with  proceeds  of  good*  mortgaged  wfD  be  held  by  a  properly  worded  mortgage 
O — Mortgages  are  not  valid  against  third  parties  after  oae  year  from  filing  of  the  name,  unless  within  thirty  day*  next 
'preceding  the  expiration  of  the  year  an  affidavit  of  renewal  1*  attached  to  and  filed  with  the  mortgare    An  affidavit  filed  after 
the  expiration  of  the  year   will  continue  the  mortgage  in  effect  exeat*  a*  acainut  tntertnuig  porrn»«er»  or  aonracaM. 
Mortgages  are  good  for  six  yean. 


248 


CHATTEL  MORTOAflrES  CONTINUED. 


States 

Must  the  mortgage  be  renewed,  and  when! 

Are  they  valid  as  to  third  parties 
on  the  stock  of  merchandise  remain- 
ing in  possession  of  and  under  con- 
trol of  the  mortgagor  i 

Are  they  valid  (as  to  third 
parties)  on  after  acquired 
property? 

No  „  

No,  unless  property  has  a 
potential  existence  at  time 
Doubtful.            mortgage  is 
given. 

Yes. 

No. 
Yes,  if  mortgage  is  prop- 
erly drawn. 

No. 

No. 

Yes. 

OUh... 
Vt  

The  lien  continues  for  only  90  days  after  matu- 
rity, provided  the  maximum  period  does  not 
exceed  15  months  in  all. 
No  

No  

Yes  

Va  
Wash.  . 

W  Va 

If  mortgage  U  for  less  than  $300,  affidavit  show- 
ing amount  "ue  will  renew  same  for  one 
year.    Over  $300,  no. 
No                     

Same  as  North  Carolina  
Yes,  but  the  mortgage  should  be  drawn 
so  that  the  mortgagor  must  apply 
sales  in  payment  of  mortgage  debt. 
No  

Wls.... 
Wyo... 

Yes,  within  30  days  next  preceding  expiration  of 
two  years  from  time  of  filing. 

Yes,  within  60  days  after  date  of  maturity  of  se- 
cured debt. 

Yes,  provided   sworn  statements  are 
filed  every  60  days,  showing  amount 
of  goods   sold,  amount  added,  and 
payment  made  on  mortgage  debt. 
Yes,  if  proceeds  of  sales  are  applied  to 
the  debt  secured. 

ESTATES  OF  DECEASED  PERSONS. 

How  Soon  Must  Demands  be  Presented  for  Allowance) 


Alabama— Within  twelve  months  from  date  of  letters  of  ad- 
ministration. 

Arizona — Within  ten  months  after  advertisement  of  notice 
to  creditors  when  estate  exceeds  $3,000,  and  within  four 
months  when  estates  are  of  less  value. 
Arkansas — Within  two  years  from  date  of  granting  letters  of 
administration.    Claims  filed  first  year  take4  precedence. 
California— Within  four  months  from  date  of  first  publica- 
tion of  notice  to  creditors,  except  where  the  estate  ex- 
ceeds $10,000.  when  ten  months  is  allowed. 
Colorado— Within  one  year  from  date  of  grunting  letters  of 

administration. 

Connecticut — Time  fixed  by  Probate  Court.    It  is  not  less 
than  six  nor  more  than  twelve  months  from  date  of  or- 
der of  limitation. 
Delaware-^  Within  one  year  from  date  of  granting  letters  of 

administration. 

District  of  .Columbia— Within  one  year  from  date  of  grant- 
ing letters  of  administration. 

Florida — Within  two  years  after  publication  of  notice  to 
creditors,  unless  value  of  estate  is  less  than  $2,000.  when 
one  year  is  allowed. 
Georgia— Within  one  year  from  date  of  granting  letters  of 

administration. 

Idaho — Within  four  months  from  date  of  granting  letters  of 
administration;  but  if  the  estate  exceeds  $1,500  in  value, 
ten  months  is  allowed. 
Illinois — Within  two  years  from  date  of  granting  letters  of 

administration. 

Indiana— Any  time  befort  thirty  days  before  final  settlement. 
If   filed  after  one  year,  must  be  prosecuted  at  cost  of 
claimant. 
Indian  Territory— Within  two  yean  from  the  granting  of 

letters  of  administration. 

Iowa— Within  one  year  from  first  publication  of  notice  by 
administrator  or  executor;  but  claims  presented  within 
first  six  mouths  have  a  priority  over  those  presented 
later. 

Kansas — Within  three  years,  but  those  presented  the  first 
year  take  precedence  over  those  presented  the  second 
year;  so  also  those  presented  the  second  year  take  prece- 
dence over  those  presented  the  third  year. 
Kentucky — Any  time  before  estate  is  closed.  If  not  presented 
within  one  year  after  appointment  of  administrator,  in- 
terest cannot  be  collected. 
Louisiana — Any  time  before  administrator  or  executor  files 

his  final  account. 
Maine — Within  two  years  of  date  of  notice  by  executor  or 

administrator  of  his  appointment. 

Maryland— Administrator  may  close  estate  in  six  months, 
but  is  allowed  one  year  from  date  of  letters;  claims  may 
be  filed  before  estate  is  closed. 
Massachusetts— Within  two  years  of  date  of  filing  of  official 

bond  by  executor  or  administrator. 

Michigan— Within  six  months  from  date  of  appointment  by 
Probate  Court  of  Commissioners  on  claims  of  such 
estates. 

Minnesota — Time  is  fixed  by  Probate  Court  at  time  of  g-  int- 
tug  letters.   Not  less  than  six  months  nor  more  thai,  one 
year  from  date  of  order. 
Mississippi — Within  one  year  from  date  of  publication  by 

administrator  or  executor  of  notice  to  file  claims. 
Missouri— Within  two  years  from  date  of  appointment  of  ex- 
ecutor or  administrator,  but  claims  filed  within  the  first 
year  take  precedence. 

Montana— Within  four  months  after  date  of  first  publication 
of  notice  to  present  cI&ims*Bieept  when  the  estate  exceeds 
MO.OOO  in  "alue.in  which  case  ten  months  is  allowed. 
Nebraska—  Within  such  time  as  the  Probate  Court  shall  al- 
low, which  shall  be  not  less  than  six  months  and  not 
more  than  eight«en  months. 
Nevada— Within  four  months  after  publication  of  notice  to 


creditors.    Estates  not  exceeding  $2.000  are  subject  to    j         «dministratiou. 


"  summary  administration."  In  snch  cases,  all  notices 
except  notice  to  creditors,  may  be  dispensed  with,  and 
the  law  does  not  require  a  four  months'  notice  in  thU 
character  of  estates.  They  are  usually  settled  within 
ninety  days. 

New  Hampshire — Within  two  years  from  the  original  grant- 
ing of  letters  of  administration ;  but  if  estate  is  settled 
as  insolvent,  claims  must  be  presented  to  Commissioner 
at  a  public  hearing  given  by  him  upon  advertised  days 
within  nine  months  of  his  appointment. 
New  Jersey — Within  the  time  limited  by  rule  obtained  by 

personal  representative — usually  nine  months. 
New  Mexico— Within  one  year,  and  suit  must  be  brought 
within  eighteen  months  from  date  of  granting  letters  of 
administration. 

New  York— Disputed  claims  must  be  referred  by  agreement 
in  writing  between  the  representative  and  the  claimant 
or  sued  on  wi.hin  six  months  after  rejection:  undisputed 
claims  will  be  admitted  any  time  before  estate  is  settled. 
North  Carolina — Within  one  year  from  date  of  granting  let- 
ters of  administration. 

North  Dakota — Within  four  months  from  date  of  notice  of 
publication  of  notice  to  creditors  to  present  their  claims. 
When  the  estate  exceeds  $5.000.  six  months  is  allowed. 
Ohio — Should  be  within  one  year:  may  be  within  two  yean; 
(one  year  additional  allowed  on  subsequently  matured 
claims).    If  claim  is  rejected,  suit  must  be  brought  in 
six  months 
Oklahoma — Within  six  months  when  the  estate  exceeds 

$5.000,  and  four  months  when  it  is  less. 
Oregon— Within  six  months  in  order  to  participate  In  the 
first  distribution  of  assets.  They  may  be  presented  at 
any  time  before  filing  settlement,  and  will  be  good 
against  the  property  remaining  undisposed  of. 
Pennsylvania — Within  one  year  from  date  of  granting  let- 
ters of  administration:  but  all  debts  are  liens  upon  real 
estate,  whether  presented  or  not,  for  two  years  after  de- 
cedent's death,  and  are  payable  out  of  personal  estate  so 
long  as  any  remains  undistributed,  until  barred  by  stat- 
ute of  limitation;  suits  must  be  brought  within  two 
years,  otherwise  lien  lost. 

Rhode  Island — Within  six  months  from  the   time  when  the 
administrator  or  executor  gives  public  notice  of  his  ap- 
pointment.  Claims  cannot  be  sued  -.ipon  until  after  first 
year 
South  Carolina — Within  one  year  from  date  of  probating  of 

will  or  granting  of  letters  of  administration. 
South  Dakota — Within  four  months  of   date  of  notice  of 
publication  to  creditors.   When  the  estate  exceeds  $5,000 
in  value,  six  months  is  allowed. 

Tennessee— Within  two  years  and  six  months  after  date  of 
granting   letters   of   administration,  by  residents,  and 
three  years  and  six  months  by  non-residents 
Texas— Within  twelve  months  from  date  of  granting  letters 

of  administration. 

Utah — Within  ten  months  from  date  of  publishing  notice  for 
creditors  to  present  their  claims ;  but  where  the  value  of 
the  estate  is  less  than  $3.000.  claims  must  be  presented 
within  four  months. 

Vermont— Within  such  time  as  the  Probate  Court  allows, 
but  not  more  than  eighteen  months  nor  less  than  six 
months  from  date  of  granting  letters  of  administration. 
Virginia— Within  twelve  months  from  date  of  granting  let- 
ters of  administration. 

Washington— Within  one  year  of  date  of  publication  of  notice. 
West  Virginia— Should  be  filed  within  one  year,  but  may  be 
filed  any  time  before  final  accounting  or  settlement  of 
estate. 

Wisconsin— Within  the  time  whic)'  the  court  shall  allow, 
which  time  cannot  exceed  one  rear,  nor  can  it  be  less 
than  six  .monthn.. 
Wyoming — Within  one  year  after  dai->  of  granting  letters  of 


INDEX. 


The  numbers  refer  to  pages. 


Abandonment,  199. 

Acceptance  of  Proposition.  25;  Implied,  25; 
presentment  for,  82;  why  and  when  neces- 
sary, 82;  effect  of,  82:  where  and  how 
should  be  made,  83;  qualified,  84;  what 
admits,  85;  forms  of,  82  and  85;  of  a  draft, 
63. 

Accident  Insurance,  207. 

Accord  and  Satisfaction,  53. 

Acknowledgment,  220;  form  of,  221. 

Action,  things  in,  13. 

Agency,  definition,  155;  when  implied,  157; 
dissolution  of,  165. 

Agents,  classes  of,  155;  who  may  be  an 
agent,  155;  how  appointed,  156;  notice  to, 
158;  duties  of  to  principal,  158;  duties  of 
to  third  persons,  160;  right  to  protection, 
162;  torts  of,  163. 

Agistors,  147. 

Alien  enemies,  23. 

Alterations,  52  and  111. 

Assent,  24. 

Assignment,  52;  form  of.  52. 

Attachment,  37. 

Baggage,  152. 

Bailee,  duties  of  in  deposit,  137;  duties  of 
in  commission,  138;  liabilities  of  in  de- 
posit, 138;  liabilities  of  in  commission, 
138;  liabilities  of  in  gratuitous  loans,  140. 

Bailment,  definition,  135;  kinds  of,  135; 
parties  to,  135;  degrees  of  care  in,  135. 

Banking,  70;  bank-book,  70. 

Bankruptcy,  52. 

Bill  of  Lading,  91 ;  definition,  91 ;  how  used. 
92;  how  endorsed,  92. 

Bill  of  Sale,  what  is,  121;  form  of,  121. 

Borrowers,  liabilities  of,  140. 

By-Law,  186,  188. 

Capital  stock,  185. 

Care,  degrees  of  required  in  case  of  bail- 
ments, 135,  144,  147. 

Carriage,  hire  of,  149. 

Carriers,  private,  149;  common,  149;  duties 
and  obligations  of,  150:  liability  of,  150; 
when  liability  ends,  151 ;  delivery,  151 ;  lien, 
151 ;  of  passengers,  152. 

Caveat  Emptor,  131. 

Certificate  of  Deposit,  72;  form  of,  72;  of 
protest,  89;  cashier's  check,  73. 

Charter,  186. 


Chattels,  transfer  of  specific,  123;  mortgage 
of,  128;  form  of  mortgage  of,  129. 

Checks,  definition,  69;  parties,  69;  form  of , 
70;  certified,  71;  form  of  certified,  71; 
cashiers,  73. 

Chose  in  action;  see  things  in  action. 

Chose  in  possession;  see  things  in  pos- 
session. 

Collateral  Note,  69;  form  of,  68. 

Commercial  Law,  11. 

Commission,  definition  of,  137;  compensa- 
tion for,  138. 

Commission  Merchants,  148. 

Common  Law,  origin,  10. 

Conditional  Sale,  122. 

Conditions  of  transfer  of  negotiable  paper, 
73. 

Consideration,  sufficient,  27;  need  not  be 
expressed  in  negotiable  paper,  76 :  for  con- 
tract of  guaranty,  107;  definition,  27;  val- 
uable, 27;  gratuitous,  28;  impossible,  28; 
moral,  29;  executed,  29;  lack  of,  30;  failure 
of,  30;  forbidden  by  statute,  34. 

Constitution,  9;  difference  between  state 
and  national,  9. 

Contracts,  definition,  16;  essentials  of,  16; 
importance  of,  16;  divisions  of,  17;  as  to 
validity,  17;  as  to  solemnity,  17;  as  to  ex- 
pression, 18;  as  to  time,  19;  joint,  19; 
several,  19. 

Contribution,  110. 

Corporations,  definition,  182;  classes,  182; 
how  created,  184;  by-laws,  186;  implied 
powers  of,  187;  name  of,  190;  by  what  law 
governed,  190;  dissolution  of,  191. 

Corporator,  what  is,  185. 

Coupon  Bonds,  95. 

Covenants  of  warranty  deed,  219;  against 
grantor,  221. 

Credit,  letters  of,  94;  form  of,  94. 

Curtesy,  estate  by,  215. 

Custody,  hire  of,  147. 


Deed,    definition,   216;   requisites  of,   217; 

kinds,  218;  release  of,  221;  quit  claim,  222; 

form  of  quit  claim,  221 ;  mortgage,  223. 
Defenses,  38;  to  negotiable  paper,  76. 
Delivery,  of  negotiable  instrument,  60;  of 

personal  property,  123;  by  installments, 

125;  constructive,  125;  without  change  of 


249 


250 


INDEX. 


possession,  124;  ^nglish  rule  of,  124; 
American  rule  of,  124. 

Deposit,  definition  of,  136;  use  of  the,  137. 

Disabilities,  legal,  20;  mental,  20. 

Dissolution,  of  an  agency,  165;  of  a  partner- 
ship, 176;  of  a  corporation,  191;  Joint 
Stock  Company. 

Diversion  of  a  paper  in  case  of  surety,  110. 

Dower,  estate  of,  215. 

Drafts,  form  of,  62;  parties  to,  62;  defini- 
tion of,  62;  acceptance  of,  63;  how  to 
transfer  a,  63 ;  foreign,  64. 

Drawee,  62;  incompetent,  84. 

Drawer,  of  draft,  62. 

Duress,  26. 

Employers,  liability  of,  162;  insurance  of, 

208. 
Endorsements,  object,  77;  where  made,  77; 

kinds  of,  78;  who  may  make,  79;  forms  of, 

80;  successive,  80. 
Endorser's  contract,  80. 
Endowment  policy,  205. 
Estates,  kinds,  213;  life,  214;  for  years,  215. 
Evidence,  35 ;  important  rule  of,  50 
Executed,  contracts,  19 ;  consideration,  29. 
Execution,  36. 
Executory,  contracts,  19. 
Exemptions,  36  and  242. 

Fee  simple,  estate  of,  213. 

Fee  tail,  estate  of,  214. 

Forfeiture,  49. 

Fraud,  26  and  33 ;  fraudulent  agreement,  to 
the  injury  of  third  persons,  33 ;  statute  of, 
38;  practiced  on  the  surety,  111. 

Garnishment,  37. 

Gifts,  30. 

Grace,  days  of,  75. 

Gratuitous  consideration,  28. 

Gratuitous  loans,  definition  of,  139;  com- 
pensation for,  139. 

Guarantor,  liability  of,  106;  how  discharged, 
112;  joint,  112. 

Guaranty,  definition  of,  106;  not  negotiable, 
109;  consideration  for,  107;  kinds  of,  107. 

Guaranty  of  title,  208. 

Guest,  who  is,  149. 

Hire,  143;  of  things,  143;  of  services,  145;  of 

custody,  147;  of  carriage,  149. 
Holder,  transfer  of  negotiable  paper  to  an 

innocent,  74. 
Holidays,  87. 
Homestead,  221  and  242. 
Hotelkeepers,  148;  duties,  148;  liabilities  of, 

148;  rights  of,  149. 

Idiot,  21. 

Infants,  22;  ratification  of  contracts  made 
by,  22. 


Injunction,  38. 

Insolvency,  52. 

InsufiQcient  consideration,  division  of,  28. 

Insurable  interest,  fire,  197;  life,  203. 

Insurance,  what  is,  196;  fire,  196;  in  several 
companies,  200;  life,  202;  casualty,  207;  ac- 
cident, 207;  employers' liability,  208;  plate 
glass,  209;  elevator,  210;  agents,  197;  plans 
of  life,  205. 

Interest,  definition  of,  114;  legal  rate  of, 
114;  what  law  governs,  114;  on  what  al- 
lowed, 114;  annual,  115;  compound,  115; 
when  negotiable  paper  bears,  114;  table 
of  rates  in  different  states,  116. 

International  law,  7. 

Intoxication,  21. 

Joint  contracts,  19. 

Joint  guarantor,  death  of,  112. 

Joint  stock  company,  how  formed,  193; 
what  articles  should  contain,  194;  com- 
pared with  partnerships  and  corporations, 
194;  howmaybe  sued,  194;  dissolution,  194. 

Joint  tenancy,  13  and  14. 

Judgment,  36. 

Judgment  note,  67;  form  of,  67;  benefit  of,  68. 

Lading,  bill  of,  91. 

Law,  definition,  7;  kinds,  7;  general  outline 
of,  6;  municipal,  7;  constitutional,  8;  stat- 
utory, 10;  common,  10;  commercial,  11. 

Legal  disabilities,  20. 

Legal  steps  in  trial,  35. 

Lender,  liabilities  of,  140. 

Letter,  duty  of,  143. 

Levy,  36. 

Life  estate,  214. 

Limitations,  statue  of,  42. 

Lost  property,  132. 

Lunatics,  20. 

Marriage,  in  general  restraint  of,  32. 

Married  Women,  23. 

Maturity  of  negotiable  paper,  75;    transfer 

before,  74. 
Maxims,  legal,  56. 
Mental  Disabilities,  20. 
Mistake,  26. 

Moral  Consideration,  29. 
Moral  Law,  7. 
Mortgage— chattel,  128;  form  of,  129;  differs 

from  pledge,  142;  real  estate,  223;  form  of, 

223. 
Municipal  Law,  7  and  8. 

Natural  Law,  7. 

Negotiability,  57. 

Negotiable  Instrument — definition  of,  67; 

elements  of,  58;  parties  to,  58;  delivery  of, 

60:  quasi,  91. 


INDEX. 


Non-acceptance,  proceedings  for,  85. 

Non-payment,  proceedings  for,  88  and  89. 

Notes— form  of,  65;  definition  of,  65;  joint 
and  several,  65;  accommodation,  66;  form 
of  demand,  66;  form  of  judgment,  67;  judg- 
ment, 67;  collateral,  69;  form  of  collateral, 
68;  negotiable  in  form,  60;  negotiable 
words  in  note,  66. 

Officers,  of  corporation,  188. 
Option,  giving  an,  25. 
Organization,  of  corporation,  185. 

Parol,  17  and  18. 

Parties,  definition,  20;  who  may  not  be,  20; 
to  negotiable  instruments,  58;  to  sale  of 
personal  property,  118. 

Partners,  kinds  of,  171;  who  may  be,  171; 
general  rule  as  to  authority  of ,  173;  rela- 
tions to  each  other,  174;  liability  of,  175. 

Partnership,  definition  of,  170;  how  formed, 
170;  what  contract  of  should  contain,  170; 
how  property  held  in,  172;  duration  of, 
172;  dissolution  of,  176;  limited,  179. 

Payment,  by  mail,  46 ;  by  note,  46,  by  check, 
47;  part,  47;  to  whom  made,  47;  applica- 
cation  of,  48;  presentment  of  negotiable 
paper  for,  86  to  88. 

Performance,  specific,  38;  of  contracts,  48; 
part,  49;  time  of,  48. 

Plate  Glass,  insurance  of,  209. 

Pledge,  definition  of,  140;  what  one  may,  140. 
delivery  in,  141;  degree  of  care  in,  141; 
wrongful,  142;  differs  from  mortgage,  142 

Pledgee,  when  may  use  property,  141 ;  prop- 
erty of  in  the  pledge,  141 ;  remedies  of,  142. 

Pledgeor,  right  of  transfer,  141. 

Policy,  fire  insurance,  198;  life,  204;  assign- 
ment of,  201,  204;  surrender  of,  201;  en- 
dowment, 205. 

Possession,  things  in,  13. 

Practical  Cases,  in  negotiable  instruments, 
ML 

Presentment,  negotiable  paper  for  pay- 
ment, 86 ;  when  and  how  should  be  made, 
86  to  88 ;  negotiable  paper  for  acceptance 
82;  when  and  how  should  be  made,  83; 
excuses  for,  84. 

Principal,  106;  extending  time  to,  111 ;  duties 
and  liabilities  to  agents  and  to  third  per- 
sons, 161;  liabilities  of  third  persons  to, 
165. 

Property,  definition,  12;  how  held,  13  and 
216;  kinds,  12;  real,  12  and  212;  personal, 
12  and  13. 

Proposition,  24;  \rith  condition.  25. 

Protest,  88;  form  of  certificate  of,  87  ;  what 
should  contain,  90. 

Proxy,  right  of  stockholders  to  vote  by,  189; 
form  of,  189. 

Public  justice,  contracts  for  obstructing,  82. 


Quasi  Negotiable  Instruments,  91. 
Quit  Claim  Deed,  222;  form  of,  223. 

Real  estate,  definition  of,  212;  conveyances 

of,  216. 

Receipts,  51 ;  warehouse,  93. 
Recording,  221. 
Recoupment,  50. 
Remainders,  215. 
Remedies,  definition,  35. 
Renunciation,  of  agency  by  agent,  166;  by 

operation  of  law,  166;    by  insanity,  167; 

when  takes  effect,  167. 
Replevin,  37. 

Restraint  of  Marriage,  32. 
Restraint  of  trade— contracts  in  general,  31. 
Reversions,  216. 

Sale,  35;  of  personal  property,  118;  bill  of, 

121;  form  of  bill  of,  121;  conditional,  122; 
.     that  defrauds  third  persons,  125;  on  trial, 

127;  by  sample,  128;  of  goods  to  arrive,  128. 
Seals,  17  and  18. 
Securities,  parting  with,  112. 
Services,  hire  of,  145. 
Set-off,  49. 

Several  contracts,  19. 
Severally,  13. 

Skill  required  in  bailment,  138  and  145. 
Specialty,  17. 

Statute  of  frauds,  38  and  120. 
Statute  of  limitations,  42. 
Statute  law,  10. 

Steam  boilers,  insurance  of-,  209. 
Stock,  classes  of,  186;  issue  of,  186;  form  of 

certificate  of,  186;  capital,  185;  transfer  of, 

191. 
Stockholders,  liabilities  of,  190,  194;  rights 

of,  191. 
Stoppage  in  transit,  92  and  126;  form  of 

notice  of,  127. 
Subject  matter,  definition,  31 ;  what  may  be, 

31 ;  what  cannot  be,  31 ;  of  sale  of  personal 

property,  119;  not  yet  in  existence,  119. 
Subrogation,  110. 
Subscriber,  who  is,  185. 
Succession,  corporations  how  have,  187. 
Summons,  35. 
Sunday,  desecration,  33;  when  last  day  of 

grace  falls  on,  76. 
Surety,  liability  of,  106;  how  discharged, 

110;  fraud  practiced  on,  111;  differs  from 

co-maker,  113;  rights  of,  110. 
Survivorship,  right  of,  14. 

Tenancy,  joint,  13;  in  common,  13. 

Tender,  44. 

Things,  hire  of,  143. 

Trade,  in  general  restraint  of,  31. 

Transfer  of  negotiable  paper  for  value,  '73; 


252 


INDEX, 


of  negotiable  paper  to  an  innocent  holder, 
74 ;  of  negotiable  paper  in  the  usual  course 
of  business,  74 ;  of  negotiable  paper  before 
maturity,  74;  of  specific  chattels,  133. 
Trial,  35. 

Usury,  115. 

Valuable  consideration,  27. 
Value,  transfer  of  negotiable  paper  for,  73 ; 
surrender  value  of  policy,  206. 


Wagers,  32. 

Warehouse  receipts,  how  used,  93 ;  form  of, 

93. 

Warehousemen,  147. 

Warranty,  of  quality,  132;  as  to  title,  132. 
Waver,  of  demand,  protest  and  notice,  91 ; 

form  of,  91. 
Wharfingers,  148. 

Years,  estate  for,  215. 


000  680  896    8 


